Evidence is growing that the U.S. and Western housing markets are returning to pre-pandemic norms.
The U.S. Census Bureau and Department of Housing and Urban Development released national data on July 26 showing that homebuilders are now offering enough homes to meet current demand for 5.9 months, almost exactly the middle of the five-to-seven month range of 2019, the last full pre-pandemic year in the United States.
During the pandemic, there was strong demand for new housing caused by urban dwellers moving to suburban settings both within their own states and elsewhere. During the 12 months of May 2020 to April 2021, there were only enough new homes for sale to meet 3.4 to 4.8 months of housing demand.
Since then, revised data shows that there were enough homes nationally in May to meet five months of purchase demand. Preliminary data for June 2021 shows there was enough for 5.9 months of new housing demand.
All these data are not seasonally adjusted. Typically, housing economists can do a pretty good job of adjusting data to create “seasonally adjusted” estimates of annual housing supply and demand figures.
In a typical year, a large portion of all home-buying occurs between Easter in the springtime and Labor Day in late summer.
Families typically take advantage of school holidays in the spring to look for homes and then summer vacations to move. Most families don’t want to change schools during the school year. Furthermore, in a typical year, there is usually very little home-buying activity in the months leading up to Thanksgiving in November and religious holidays in December. Families typically want to be “settled” when planning their holiday activities.
However, during the pandemic, children were learning online, and their education would typically not be interrupted if their family moved.
Preliminary HUD and Census Bureau data for June showed 90,000 new homes available for sale in the Western United States, the most available since January 2019. The figure was up 15,000, or 20 percent, from the 75,000 homes available last December through February.
Looking forward, the Mortgage Bankers Association just published its forecasts for mortgage rates. It expects the rate on a typical 30-year fixed-rate mortgage to rise from 3 percent during the April–June quarter to 3.4 percent during the October–December quarter. It expects the rate to steadily climb to 4.3 percent by the end of 2022 and 4.9 percent by the end of 2023. This will likely temper the red-hot demand for home purchases.
Furthermore, if pandemic restrictions continue to reduce, it’s possible some people forming new households will choose to live in those urban homes vacated by the people who bought new homes during the pandemic. Home rents in many cities remain substantially below where they were before the pandemic started.
According to Zumper’s National Rent Report released July 26, rents for one- and two-bedroom apartments in San Francisco are down 15 percent from the year-ago period. Across the bay in Oakland, rents are down 13 percent for one-bedroom apartments and 11.2 percent for two-bedroom apartments. Rents are down 6 percent in San Jose (Silicon Valley) and 7 percent in Los Angeles.
Not all rental markets are down. Rents in San Diego are up 10 percent from the year-ago period.
With urban rents lower in many cities and housing supply returning to pre-pandemic levels, the California housing market may soon start to resemble pre-pandemic supply and demand characteristics.
