Housing Is Soaring but That Doesn't Mean the Economy Will Do the Same

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Housing is hot, but households' finances are not. 

With the unemployment rate at 10%--and above 15% earlier this year--the housing market has soared amidst the pandemic. The stock market has done the same for several reasons, including the apparent fast economic recovery so far. But the 2020 boom in housing is mostly attributable to historically low-interest rates, which may not be around for much longer. And that V-shaped economic recovery hinges on many factors outside just what we can glean from housing data. 

First off, July home sales volumes hit an annual run rate of 900,000. That's the highest level since before the Great Financial Crisis. 

After a plunge in housing during and just after the crisis, housing volumes ran at a rate of about 300,000 annually before the economy rebounded. That was the lowest level since before 1960. Needless to say, housing rebounded to above 600,000 at the start of 2020, but then shot up 50%. 

The pandemic forced the Federal Reserve to slash interest rates to rock bottom levels; short-term lending rates can't fall from here unless the Fed wants to go to negative rates. The average 30-year fixed mortgage rate in the U.S. has fallen to 2.9% from 3.7% in January, according to data from the St. Louis Fed. And this is by far the lowest rate in many decades. 

Regardless of the economy, people will at some point buy homes. And they want to do so at the lowest interest rate possible. So while consumer confidence is down and consumer spend plunged in the first half of the year, people are still setting aside some cash to make a down payment and borrow cheap money for houses. 

And for several reasons, this housing data isn't necessarily pointing to a sharp economic recovery. 

"Despite the strong housing numbers, we have an increasing number of people who failed to make their mortgage payment and can't make their apartment rent," Mish Shedlock, The Maven's Founder of Mish Talk said. "You have to separate these components [economic data points]. We have various components of the economy operating at different speeds. Certainly, restaurants and hotels and airlines are at the bottom of the rung and housing, with the Fed keeping interest rates -- I believe ridiculously low -- the low-interest rates benefit the wealthy." Much of his point: sure, some homebuyers may be impacted by the recession, but many of them are also wealthy and unaffected. 

For more macro analysis, see Mish's page and TheStreet.com

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