The US housing market boomed last year even as the COVID-19 pandemic caused one of the worst economic contractions of modern times, as Americans took advantage of low borrowing rates to buy homes.
The surge in new and existing home sales, and home construction, underscores the unequal experience of the pandemic across the US. Even as tens of millions of people lost their jobs due to the pandemic disruptions, others were able to afford major property purchases.
It serves a stark contract to the 2008 global financial crisis, when mortgages were at the center of the downturn and the US housing market collapsed.
Photo: AFP
Existing home sales last year hit the highest level since 2006, the National Association of Realtors (NAR) reported on Friday, with sales rising to 5.64 million, 5.6 percent higher than in 2019, before the virus harrowed the world’s largest economy.
While the US Department of Commerce would not release its year-end data for new home sales until next week, through November last year, the 841,000 seasonally adjusted annual rate was 20.8 percent above the same month in 2019.
“What’s even better is that this momentum is likely to carry into the new year, with more buyers expected to enter the market,” association chief economist Lawrence Yun said.
The housing market was fairly solid before the pandemic hit, but the US Federal Reserve’s decision to slash its benchmark lending rate to zero as the coronavirus crisis began, fueled the surge in purchases after a short pause.
The drastic Fed move was a sign of the severity of the damage and intended to keep the economy afloat. The last time the central bank cut rates to zero was during the global financial crisis, when the housing market was in the eye of the storm and a wave of sub-prime mortgage defaults caused millions of foreclosures.
With mortgage rates hitting historically low levels last year, according to government-sponsored lender Freddie Mac, buyers seized the opportunity.
The Pew Research Center in July last year reported that about one in five Americans moved due to the pandemic or know someone who had, and 18 percent of those who moved said the reason was financial.
However, there was also evidence that people took advantage of the changing situation to try out new digs. Pew reported that 13 percent of people moved to a second home or vacation residence, while 9 percent headed to a new place that they either bought or rented.
Although some sectors of the economy are struggling to recover from the business restrictions that began in March last year to stop COVID-19 from spreading, home sales rebounded sharply as summer arrived and remained strong even as the pace slowed.
“The housing market has been a bright spot of the economic recovery thus far,” Mortgage Bankers Association associate vice president Joel Kan said.
Home builders have struggled to keep up with demand, and construction of new homes grew 7 percent last year, compared with 2019.
Existing home inventory last month dropped to 1.07 million units, 16.4 percent lower than November last year and down 23 percent from the year-ago period, NAR said.
Strong demand and short supply sent the median sale price upward to US$309,800, 12.9 percent above December 2019.
However, analysts warned that the market might be cooling off as a shortage of affordable homes diminish buyers’ interest.
“We expect a renewed, sustained increase in housing activity in the spring, when the COVID pandemic should be receding, but sales are unlikely to rise further before then,” Ian Shepherdson of Pantheon Macroeconomics said in an analysis.
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