United States: Home Sales Skyrocketed as COVID Swept the Nation

(11 November 2020) Not all sectors of the US economy have been hit hard by the COVID induced economic crisis. The US residential real estate market is one of the rays of hope amidst the gloom. Low interest rates and trillions of dollars of US government stimulus have decreased Americans' debt burden and made homes more affordable, sending sales of single-family homes up by 28 percent in August compared to January.

• In mid March 2020, the US Federal Reserve lowered the federal funds rate to nearly zero to support the economy as COVID-19 took hold nationwide. Immediately following, the 30-year mortgage rate—which had already been in general decline since late 2018—turned downward and as of earlier this month reached a record low 2.78 percent.
• Lower interest rates have also helped to reduce the debt burden for US households. In Q2 2020, the ratio of mortgage debt service payments to disposable personal income dropped to a record low 3.7 percent.

Looking ahead, rumors of housing price bubbles and shocks reminiscent of the global financial crisis weigh heavy on an already pandemic stricken economy even though housing prices have not yet migrated northward. As buyers have enjoyed lower and lower mortgage rates since 2018, home prices have remained relatively unchanged. One signal to watch, however, is market supply. In August 2020, the ratio of 'houses for sale' to 'houses sold' decreased to a record low level since 1963 with only a 3.4 month supply. This indicates that demand for new homes is outpacing market supply.