Pending Home Sales Drop to a Record Low—Even Worse than During the Financial Crisis
Recent reports have revealed that Pending Home Sales dropped to their lowest level since measurements began in 2001, with May 2020 sales being 26.4% lower than the previous months. This is especially concerning, as this figure even surpasses the lows seen during the 2008 Financial Crisis.
The financial crisis of 2008, which triggered an economic and housing downturn still being felt across the U.S., was the worst housing market crisis the country had seen since the Great Depression. Since then, the housing industry has seen a steady and gradual recovery. Nevertheless, pending home sales have now taken an unexpected turn for the worse this year.
The Chief Economist of the National Association of Realtors (NAR) is attributing the dismal numbers to the COVID-19 pandemic and its associated economic downturn. “With record high unemployment, households on the sidelines and other measures keeping buyers and sellers from fully participating in the market, it’s not surprising to see pending sales fall off even more than they did during the Great Recession,” he said.
The prospects of an economic and housing downturn have been further compounded by further disruption to the market triggered by the recent economic stimulus package. The influx of new money from the government has caused prices of homes and mortgages to soar, making it even harder for buyers to break into the market.
Nevertheless, the NAR Chief Economist remains hopeful that rising pending home sales numbers will eventually follow if the economy returns to stability. However, the extent of the long-term damage to the housing market remains to be seen.
“Once the economy and labor market improves, more serious buyers will enter the market,” he said. “But there are likely to be structural changes that will make housing more expensive over the next few years and put homeownership out of reach for many households.”
It is clear that the current crisis has been especially difficult for the housing market, with pending home sales dropping to record low levels—even worse than during the Financial Crisis. In the coming weeks, we will be keeping an eye on the housing industry to understand how the situation develops as the economy gradually recovers.
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