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The housing market
American Middle Class

SHOULD YOU BUY INTO THE HOUSING MARKET RESILIENCY?

The housing market keeps sending mixed signals.  The U.S. May pending home sales rise a record 44.3% versus a 19.3% forecasted.  In April, the S&P CoreLogic Case-Shiller National Home Price Index 10 and 20-city composites were up 3.4 and 4 percent, respectively.  Pending home sales does not mean under contract, but a rise of 44.3 percent is shocking.

8.9% of all mortgages are now in COVID-related forbearance, 47.2 % of Americans are jobless, 2.5 million Americans tested positive for the virus with more than 126,000 deaths, but yet the housing market ignores all those grim statistics.

Historical mortgage rates and low supply are driving demand. The current 30-year fixed mortgage rate is hovering around 3.2 percent. Buyers do have a good reason to try to lock extremely cheap rates, but how about the depression-like unemployment rate.

The Housing Market- Cash Buyers

The housing market is ignoring all grim economic data.  The only valid explanation for that ignorance is cash buyers, who don’t need banks to finance their houses.

Before the government ordered Americans to shelter-in-place and 95 of businesses to shut down, JPMorgan Chase announced that they would tight their home mortgage lending guidelines.  In general, mortgages are harder to get right now.

Investors and international cash buyers are propping up the market. According to a recent study, before Covid-19, nearly 50 percent of home sales were all-cash deals.

Central banks across the globe have responded to the Covid-19 pandemic by slashing their benchmark interest rates to as low as 0%.  The United States 10-year Treasury note pays an interest rate of 0.655%.  Also, the Germany 10-year government bond pays a negative 0.454.  German savers are paying their government to hold their money.

With savings account and government bonds paying negative interest rates, investors are seeking for yields and need somewhere to park their piled savings.  The U.S. housing market seems to be one of the asset classes that investors are gobbling up.

The Bottom line

Investors and homebuyers should buy into the housing market resiliency, but politicians and economists need to tread lightly because the current housing market does not capture the suffering of the 30 million Americans who are currently unemployed.

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