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Has the housing market reached the bottom? New data suggests the market has already started to recover.


Has the housing market reached the bottom? New data suggests the market has already started to recover.

A report by Bank of America (BofA) points to early data that it says suggests the housing market has already reached the bottom — nearly a year ahead of schedule, compared to a prior BofA forecast.The report points to the increases in mortgage purchase applications and in both buyer and builder confidence. Visit Business Insider’s homepage…

Has the housing market reached the bottom? New data suggests the market has already started to recover.

Back in early May, Bank of America forecasted that home prices will drop by 2% over the next year as a result of the coronavirus pandemic, and would hit bottom in April 2021.

However, a new report by BofA points to early data that suggests the housing market may have already hit bottom and is starting to recover.

As discussed in its Housing Watch note, BofA says the housing market is “the victim of the economic recession and not the culprit. The fundamentals of the housing market are sound which means that after a correction lower there will be a natural pull for recovery. Challenges remain but the healing process has already started.” 

One of the indicators that has led to this updated forecast is mortgage purchase applications.

According to a report by the Mortgage Bankers Association (MBA), applications to purchase a home rose 6% for the week ending on May 15 compared to the week prior.

“Applications for home purchases continue to recover from April’s sizeable drop and have now increased for five consecutive weeks. Purchase activity — which was 35% below year-ago levels six weeks ago — increased across all loan types and was only 1.5% lower than last year,” MBA’s Associate Vice President of Economic and Industry Forecasting, Joel Kan, said in the report. 

In addition, BofA reported that a survey conducted by the University of Michigan found an uptick in the percentage of respondents who believe now is a good time to buy; there has also been an increase in builder confidence. According to a report by the National Association of Home Builders (NAHB), builder confidence for newly built single-family homes increased seven points in May to 37. According to the report, the increase followed the largest monthly drop in the history of the NAHB/Wells Fargo Housing Market Index (HMI) which took place in April.

Anything above 50 on the index is positive. And, while May’s number is still negative, the improvement from April points the market in a positive direction. To put the impact the pandemic has had on builder confidence into perspective, CNBC reported that in December 2019, the index hit a record high of 76.

“The fact that most states classified housing as an essential business during this crisis helped to keep many residential construction workers on the job, and this is reflected in our latest builder survey,” Chairman Dean Mon said in the NAHB report. “At the same time, builders are showing flexibility in this new business environment by making sure buyers have the knowledge and access to the homes they are seeking through innovative measures such as social media, virtual tours and online closings.”

The index also showed additional gains in May. Current sales conditions increased six points to 42, sales expectations in the next six months increased 10 points to 46, and buyer traffic increased eight points to 21.

“As many states and localities across the nation lift stay-at-home orders and more furloughed workers return to their jobs, we expect this demand will strengthen. Other indicators that suggest a housing rebound include mortgage application data that has posted four weeks of gains and signs that buyer traffic has improved in housing markets in recent weeks. However, high unemployment and supply-side challenges including builder loan access and building material availability are near-term limiting factors,” NAHB Chief Economist Robert Dietz said in the report.

According to BofA, early data on buyer and builder confidence and mortgage applications suggests the bottom has been reached.

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In addition, BofA expects residential investment to see a turnaround in the fourth quarter of 2020.

“Residential investment is on track to be a drag to GDP growth in 2Q and 3Q but we expect a turnaround by 4Q. Housing should once again become one of the positive stories for the economy. That said, there will be challenges ahead for housing given the broader malaise in the economy,” the report reads.

BofA goes on to explain that while there are early signs of a turnaround, the challenges of the current economy and the uncertainty that surrounds factors like unemployment can present obstacles.

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