Economic Update October 25
Mobile Home Prices
Existing homes continue to rise as low-interest rates, low inventory, and high demand drive sales. Mobile home prices are rising and don’t seem to be slowing down.
Strong buyer demand is leading to more new home construction as builder confidence grows
LA consumer confidence remains at all-time lows as the pandemic continues to impact people in different ways
Existing Home Sales
Existing home sales increased 9.4% in September to an adjusted 6.540 million annual units, according to the National Association of Realtors. Sales are up a staggering 20.9% versus a year ago. Sales surpassed consensus expectations in September, rising for a fourth consecutive month and hitting the highest pace since 2006. If you recall, from February (pre-pandemic) to the bottom in May, sales collapsed 32.1%, as lockdown measures and widespread economic uncertainty took hold across our country. But since then, sales have blown past the previous February high and are up 13.5% from pre-pandemic levels. See how we go through our process of selling homes.
Fed’s Liquidity Policies
One major contributor to the recent recovery has been the Fed’s liquidity policies, which have helped push 30-year fixed mortgage rates to record lows, boosting affordability. It also looks like the pandemic and the resulting public health measures have given potential buyers a new sense of urgency, with demand for existing homes so strong in September that 71% of the homes sold were on the market for less than a month. That said, sales face a continued headwind from the low inventory of existing homes. In fact, the NAR report shows that inventories were lower than any other September on record and down 19.2% versus a year ago.
New Home Construction
Single-family starts showed continued growth in September as overall housing production increased by 1.9 percent, according to a report from the U.S. Department of Housing and Urban Development. The September reading of 1.42 million housing starts represents the number of housing units builders would begin if they kept this pace for the next 12 months. Amazingly, this is the highest pace of single-family starts since June 2007. On the other hand, the multi-family sector, which includes apartment buildings and condos, decreased 16.3 percent to anemic 307,000 units.
Mobile Home Prices
Nevertheless, builder confidence is at an all-time high as buyer traffic is stronganother sign that housing is helping to lift our economy. Home sales have exceeded home construction recently, which means the additional home building will be necessary for the near term. Buyer demand is supported by low-interest rates, a suburban shift in demand, and demographic tailwinds. However, headwinds due to limited building material availability are slowing construction activity (despite strong demand). Authorized (but not started) single-family homes is up 22.4 percent compared to a year ago.
LA Consumer Confidence – Mobile Home Prices
Consumer confidence in Los Angeles County during the third quarter (July, August & September) hovered near record lows set during the second quarter, according to a survey released by the Lowe Institute of Political Economy at Claremont McKenna College. The Survey of L.A. County residents taken during the end of September shows sentiment toward current business conditions in the county at an index of 23.6, up slightly from the rock-bottom mark of 22.2 in the second quarter. To put these numbers in perspective, consumer sentiment for the third quarter of 2019 was 83.2. (The baseline of 100 was set in the second quarter of 2015 as the Lowe survey program launched.)
A peak reading of 126 was reached in the third quarter of 2016. In other words, the index for the third quarter of 2020 was more than 100 points lower than that peak, a magnitude of decline unimaginable when the Survey premiered.! The Survey also reveals a growing disparity in consumer sentiment among income groups, showing how the halting recovery from the pandemic-induced recession is playing out differently depending on income levels. The three income groups low, middle, and high are moving in dramatically different directions, essentially creating a three-track recovery.
Bubble Watch
California house prices hit their fourth consecutive record high, a 17.6% year-over-year gain, according to the eternally-optimistic California Association of Realtors (CAR). The median sales price for an existing single-family house in California reached $712,430 in September (vs. $605,680 a year earlier), creating the largest percentage-point jump since 2014.! A buying frenzy is fueling the price gains, with houses selling at a 489,590-a-year pace up 21% in a year to the fastest pace since February 2009. Housings rebound from a springtime coronavirus-related dip has been powered by historically low mortgage rates and the pandemics push by homeowners to own larger living spaces.