The numbers: Existing-home sales rose for the fifth consecutive month in October, as the housing market finally made up for the pandemic-related downturn in sales this spring.
Total existing-home sales increased 4.3% from September to a seasonally-adjusted annual rate of 6.85 million, the National Association of Realtors reported Thursday. Compared with a year ago, home sales were up roughly 27%. It was the highest level of home sales in 15 years.
“Considering that we remain in a period of stubbornly high unemployment relative to pre-pandemic levels, the housing sector has performed remarkably well this year,” Lawrence Yun, the trade group’s chief economist, said in the report. “The surge in sales in recent months has now offset the spring market losses.”
Economists polled by MarketWatch had projected existing-home sales to rise to a median rate of 6.5 million.
What happened: Home sales grew in every region across the country, led by an 8.6% increase in the Midwest, the National Association of Realtors reported.
But the supply of homes on the market is a growing concern. By month’s end the total inventory of homes for sale dropped to a 2.5 months’ supply, the lowest on record. A six-month supply of homes is considered to be indicative of a balanced market.
As in September, 7 in 10 homes sold in less than a month. The fast pace of sales drove prices higher, with the median existing-home price was $313,000, up 15.5% from October 2019.
The big picture: A number of recent trends are supportive of growing home sales. Mortgage rates remain at all-time lows — dropping to the lowest level on record for the 13th time this week. Not only do low rates ease affordability constraints caused by the low supply of homes on the market, but they also serve as a catalyst spurring people to enter the market to lock in the cheap financing before it goes away.
Additionally, Americans are busy improving their homes. Both Home Depot and Lowe’s reported increasing sales in the third quarter as Americans spent money renovating their properties. Some of this was undoubtedly caused by people spending more time at home amid the pandemic — and therefore finding more flaws to fix. As economist Christophe Barraud notes, “home-improvement activity is closely correlated with existing home sales.” Sellers want to put their best foot forward, and that means doing things like touching up paint or fixing broken fixtures.
What they’re saying: “So far, the housing market appears immune to the virus due to record-low borrowing costs and teleworkers seeking roomier and cheaper properties outside of major cities,” Sal Guatieri, senior economist at BMO Capital Markets, said in a research note.
“While rising prices may be a drag on home sales, mortgage rates are contributing to affordability,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note. “While demand for mortgages is likely to stay strong — despite job and income losses — tightening lending standards may be a constraint going forward.”
“With the recent good news on vaccines, it is likely many buyers and sellers are going to reevaluate their preferences as they imagine a world getting back to pre-pandemic conditions in the near future,” said chief economist at Keller Williams.
Market reaction: The Dow Jones Industrial Average and the S&P 500 were both down in Thursday morning trading.