Despite a record low supply of homes for sale and an unexpected uptick in December 2020 in manufactured Home sales (i.e., the U.S. secondary housing market), which account for about 90% of U.S. home sales, the relevant statistical agencies are admitting: the U.S. housing market is not healthy right now!
On Friday, January 22, according to the National Association of Realtors (NAR), the quarterly annualized total of U.S. manufactured home sales in December 2020 rose 0.7% from a year earlier to 6.76 million, well ahead of market expectations for a 1.9% decline to 6.56 million from a year earlier and a 22% rise from a year earlier.
The previous annualized total for November was also revised upward from 6.69 million to 6.71 million, narrowing the month-over-month decline from 2.5% to a 2.2% drop. in October, the figure had hit a fifteen-year high since November 2005 with 6.86 million, and November was the first year-over-year decline since May 2020, once ending a trend of five consecutive months of year-over-year gains.
Notably, annualized home sales for 2020 totaled 5.64 million, a new annual high since 2006 and significantly higher than the annualized total of 5.34 million for each of 2018 and 2019.
By region, home sales in the relatively expensive Northeast U.S. rose 4.5% in December from a year earlier to the highest in fourteen years.
The median home sale price rose 12.9 percent year-over-year in December and rose 106 months in a row to $309,800. Although it retreated from November’s $310,800 year-over-year, it recorded five consecutive months of double-digit year-over-year gains and was the highest December price on record.
From June to October 2020, the median sale price of a U.S. second home had been at an all-Time high for five consecutive months since data became available in 1968, with the price first breaking the $300,000 mark in June and remaining high ever since.
On the one hand, the surge in U.S. secondary home prices from June 2020 has been largely due to a shortage of supply, with pending inventory and days to sell out both setting new record lows in December.
By the end of December, 1.07 million homes were listed for sale, breaking the 1982 record low set by 1.28 million in November, a 23% year-over-year drop, and a 19-month decline.
At the current sales pace, the December inventory will sell out in 1.9 months, breaking the 1982 record low set in September-November. The market generally considers a sell-out period of less than five months to be a “tightening on the supply side” and six to seven months to be a “healthy balance between supply and demand. Homes for sale remained on the market for an average of 21 days, a record low for the fourth consecutive month.
Lawrence Yun, NAR’s chief economist, believes “this is unusual” because during the year-end holiday season, which is not usually the peak season for sales in the U.S. housing market, the number of days on the market for second homes usually increases, “but not in 2020. “. He also believes that the overall annualized total of manufactured home sales in 2020 would have reached as many as 8 million if not for the lack of supply.
On the other hand, the sharp rise in median home prices also suggests stronger sales at the higher end of the market where there is more supply. sales of manufactured homes priced less than $100,000 fell 15 percent year-over-year in December, sales of $500,000 to $750,000 were up 65 percent year-over-year, and sales of million-dollar-plus manufactured homes soared 94 percent year-over-year.
Lawrence Yun warned that “the current U.S. housing market is not healthy,” the lack of supply and strong demand continues to exacerbate the upward pressure on home prices, fierce competition is also attracting more people to buy homes in full cash, will make the first “just” buyers frustrated, they may not be able to save for a down payment to keep up with the rate of price increases, mortgage buyers are also difficult to grab the house of their choice.
The data show that all-cash offers accounted for 19 percent of total sales in December, while investors accounted for 14 percent, and first-time buyers accounted for just 31 percent, well below the usual 40 percent level historically, Yun said. Both record low supply and record high selling prices will dampen pent-up demand.
However, in the low interest rate environment foreseeable in 2021, U.S. mortgage rates will hover at historically low levels and will continue to support demand in the housing market. The Democratic Party’s hold on the U.S. federal government and the House and Senate of Congress also raises hopes for a larger fiscal stimulus that could boost Americans’ household incomes and boost home sales, with momentum in the housing market continuing at least through the first quarter of the new year.
Data released Thursday by the U.S. Department of Commerce showed that U.S. new housing starts rose 5.8% in December from a year earlier, far exceeding expectations of a 0.8% increase and a 1.2% increase in the previous value in November, to an annualized total of 1.669 million homes, rising to a more than 14-year high since September 2006.
Meanwhile, residential building permits, the bellwether of future home construction, rose 4.5% in December to an adult rate of 1.709 million, beating economists’ expectations for a 1.8% year-over-year decline to 1.61 million, representing a housing supply that is catching up with demand.
The SPDR S&P Homebuilders ETF (trading symbol XHB) followed the broader market decline and was down more than 0.2% in early trading, having risen for three consecutive trading days before Friday, and also hitting a record closing high on Thursday.
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