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Wait, Did the U.S. Housing Market Really Just Hit Rock Bottom?

Wait, Did the U.S. Housing Market Really Just Hit Rock Bottom?
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  • Pending home sales fell 21.8% in April and 33.8% annually, recording their biggest plunge ever.
  • This may be as bad as it gets for the U.S. housing market.
  • One economist has already upgraded his full-year forecasts for residential real estate prices and sales.

Housing market bulls braced for a grisly pending home sales reading today, and boy did the data deliver. But this sudden collapse in contract signings may have a silver lining.

Because although it’s true that this gauge of purchase activity just careened to an all-time low, it may have also signaled that the U.S. housing market has already hit rock bottom.

The Worst Pending Home Sales Reading Ever

Pending home sales struggled mightily in April, but one housing market economist says the worst is over. | Source: Tyler Olson/Shutterstock.com

Economists knew that widespread lockdowns would upend real estate transactions. But they still didn’t expect it to be this disruptive.

New statistics from the National Association of Realtors (NAR) reveal that pending home sales dove 21.8% in April, blowing past economist estimates of a 15% contraction.

U.S. pending home sales fell 21.8% for the month in April, or 33.8% year-over-year. | Source: Trading Economics

Add in March’s 16.8% downturn, and April contract signings fell an unbelievable 33.8% from the previous year. That’s the biggest decline since NAR launched the index in 2001.

Pending home sales fell 33.8% annually in April 2020, the biggest decline in the index’s 19-year history. | Source: Trading Economics

But just like with the consistently awful labor market data, what matters most to analysts isn’t how ugly the statistics are. It’s what they’re going to look like in the weeks and months ahead.

And according to NAR Chief Economist Lawrence Yun, this is probably the worst they’re going to get.

Economist Upgrades 2020 Housing Market Forecast

Pending home sales are a leading indicator of closings, a metric that should endure its worst month in May.

But they’re a lagging indicator of demand, which Yun says has been “surprisingly resilient” in the midst of an unprecedented economic crisis.

Already, home purchase mortgage application volume has recovered back to 2019 levels, while Google searches for “buy a home” have skyrocketed to all-time highs.

Google search volume for “buy a home” hasn’t just been resilient during the pandemic. It’s skyrocketed to all-time highs. | Source: Google Trends

Part of this stems from tight housing inventories, but individual consumers are so eager to purchase a home that more than 40% of them were getting into bidding wars at the same time contract signings were cratering.

Yun comments:

While coronavirus mitigation efforts have disrupted contract signings, the real estate industry is ‘hot’ in affordable price points with the wide prevalence of bidding wars for the limited inventory.

In the coming months, buying activity will rise as states reopen and more consumers feel comfortable about homebuying in the midst of the social distancing measures.

In fact, Yun is so bullish on the housing market’s ability to snap out of its lockdown funk that he is already upgrading his full-year forecasts.

He now expects the median home price to rise by 4%, although sales will fall by 11%. He previously predicted that sales would fall 15% and home prices would remain static.

This article was edited by Sam Bourgi.

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