Boosted by historically low mortgage rates, existing home sales, as reported by the National Association of Realtors (NAR), posted another record increase in July and surpassed pre-pandemic levels.

Total existing home sales, including single-family homes, townhomes, condominiums and co-ops, soared 24.7% to a seasonally adjusted annual rate of 5.86 million in July, the largest monthly gain on record and the highest level since December 2006. On a year-over-year basis, sales were 8.7% higher than a year ago.

The first-time buyer share decreased to 34% in July from 35% last month, but is higher than a year ago (32%). However, price gains threaten this share in the future. The July inventory level fell to 1.5 million units from 1.54 million units in June and is down from 1.9 million units a year ago.

At the current sales rate, the July unsold inventory represents a 3.1-month supply, down from 3.9-month in June and 4.2-month a year ago. This low level supply of resale homes is good new for home construction.

Homes stayed on the market for an average of just 22 days in July, down from 24 days last month and 29 days a year ago. In July, 68% of homes sold were on the market for less than a month.

The July all-cash sales share was 16% of transactions, equal to last month but down from 19% a year ago.

Despite the recent fluctuation in sales, home prices remained strong. The July median sales price of all existing homes was $304,100, up 8.5% from a year ago, representing the 101st consecutive month of year-over-year increases. This is also the first time national median home price reached $300,000 level. The median existing condominium/co-op price of $270,100 in July was up 6.4% from a year ago.

Regionally, all four regions saw double-digit month-over-month gains for existing home sales in July, ranging from 19.4% in the South to 30.6% in the Northeast.  On a year-over-year basis, sales grew in the Midwest, South and the West (10.3%, 12.6% and 7.8% respectively), while sales declined 5.9% in the Northeast.

Though sales have picked up, rising home prices driven by low inventory and elevated jobless claims could be a bottleneck for future home sales. More listings and home construction are needed to meet this rising demand.

Over the first six months of 2020 – and after the onset of the impact of the coronavirus – total single-family permits issued year-to-date (YTD) nationwide reached 433,484. On a year-over-year (YoY) basis, this is an 3.8% increase over the June 2019 level of 417,453.

Year-to-date ending in June, single-family permits across the four regions ranging from an increase of 6.5% in the South to a decline of 1.7% in the Northeast. In multifamily permits, South reported a 3.1% increase while the other three regions reported declines – Northeast (-14.7%), Midwest (-6.2%), and West (-5.6%).

Between June 2019 YTD and June 2020 YTD, 34 states saw growth in single-family permits issued while 16 states and the District of Columbia registered a decline. South Dakota recorded the highest growth rate during this time at 36.7% from 1,178 to 1,610, while single-family permits in the District of Columbia declined by 50.0%, from 108 in 2019 to 54 in 2020. The 10 states issuing the highest number of single-family permits combined accounted for 61.8% of the total single-family permits issued.

Year-to-date, ending in June 2020, the total number of multifamily permits issued nationwide reached 224,918. This is 3.3% decline over the June 2019 level of 232,682.

Between June 2019 YTD and June 2020 YTD, 21 states and the District of Columbia recorded growth while 29 states recorded a decline in multifamily permits. North Dakota led the way with a sharp rise (449.0%) in multifamily permits from 98 to 538, while Michigan reported the largest decline of 55.1% from 3,117 to 1,401. The 10 states issuing the highest number of multifamily permits combined accounted for 64.3% of the multifamily permits issued.

At the local level, below are top 10 metro areas which issued the highest number of single-family permits. 

For multifamily permits, below are the top 10 local areas which issued the highest number of permits:  

The Federal Reserve’s latest release of the Senior Loan Officer Opinion Survey shows banks’ lending practices and households and businesses’ demand for various classes of loans as of the second quarter of 2020. As evidenced in the survey, in the wake of the COVID-19-wrought pandemic, widespread economic hardship caused many banks to tighten their standards across all credit classes of households and businesses. With these tightening standards also came the imposition of interest rate floors on financial products in Commercial & Industrialized lending. At the same time, businesses reported weaker demand for loans in the second quarter, not only when compared to the previous quarter but also when compared to second quarter of the prior year.

As shown above, as of the second quarter of this year, on net, 64% of banks held tighter standards for financing multifamily developments than banks which did not, and 81% of banks held tighter standards for financing construction and land development than those which did not. At the same time, an overwhelming positive net share of real estate businesses expressed less demand for those activities; on net, 58% of banks reported less demand for multifamily loans and nearly 60% of banks reported less demand for loans for construction and land development. These results are consistent with the general state of the U.S. economy reeling from the initial economic effects of the pandemic.

Unlike the demand for commercial real estate, the demand for residential real estate, i.e., single-family units, has shown strong growth. As interest rates reached record lows, pent-up demand for housing that had been latent in the first months of the pandemic in the United States, combined with severe supply constraints, created a perfect storm. The data show net shares of banks reporting increased demand over the last three months across various mortgage classes. Interestingly, the data also show slightly higher shares of banks reporting stronger demand for Qualifying Mortgage (QM) loans than non-QM loans. Qualifying Mortgages ensure that the borrower meets certain requirements.

Builders and developers responding to NAHB’s survey on financing for Acquisition, Development and Construction (AD&C) indicated that credit continued to become tighter in the second quarter of 2020.   The net tightening index derived from the survey came in at 12.0, after reaching an 8 1/2-year high of 22.7 in the first quarter. The index is constructed so that positive  numbers indicate tightening of AD&C credit, negative numbers easing.  The first quarter of 2020 marked the  first time NAHB members had reported positive net tightening since 2012.  Meanwhile, a similar index from the Federal Reserve’s survey of senior loan officers also indicated net tightening of credit in the second quarter—and to a much greater extent than the NAHB survey.  The Fed index jumped by more than 28 points, to a positive 80.9.

The top ways in which lenders were tightening credit during the second quarter, according to the builders and developers who reported tightening, were lenders simply ‘not making new loans’ and lenders ‘pulling back because of coronavirus concerns’ (each cited by 52 percent of respondents), followed by lenders ‘lowering their LTV or LTC ratios’ (48 percent) and ‘reducing the amount they are willing to lend’ (41 percent).

Reversing a downward trend from the previous quarter, larger shares of builders and developers reported seeking AD&C loans in the second quarter of 2020.  The share increased from 22 to 31 percent of respondents seeking credit for land acquisition, from 20 to 29 percent of respondents seeking credit for land development, and from 45 to 52 percent of respondents seeking credit for any type of single-family construction.  Despite the rebound, all these percentages remained lower than they were at the end of 2019.  It is tempting to blame the reduced loan-seeking behavior on the coronavirus, although relatively few builders or developers specifically cited the virus as a motivating factor when given the chance.

Also in the second quarter of  2020, builders and developers reported declining interest rates on all types of AD&C loans covered in the NAHB survey.  The average effective rate (based on  rate of return to the lender over the assumed life of the loan taking both the contract interest rate and initial fee into account) declined from 6.84 to 6.43 percent on loans for land acquisition, from 7.95 to 6.61 percent on loans for land development, from 8.83 to 7.64 percent on loans for speculative single-family construction, and from 7.92 to 7.16 percent on loans for pre-sold single-family construction (Exhibit 12). This marks the third quarter in a row of declining effective rates on all four categories of loans.  Except for the spec construction loans,  the largest declines occurred between the fourth quarter of 2019 and first quarter of 2020.