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Suburbia or bust!

Desire to exit cities fuels strongest June home sales since the housing boom or 2005.

The sudden recession earlier this year caused a sharp decline in the real estate market. But increasing consumer confidence, along with an emerging demand for modern houses with the amenities for working off sight and home schooling outside of congested cities made for a rousing recovery in June.

According to a monthly survey by John Burns Real Estate Consulting (JRBC), purchases of newly built homes jumped 55% in June over last year. That was the largest annual gain since homebuilding began again following the massive housing crash just over a decade ago. It’s also the highest pace for sales since the height of the unprecedented housing boom in 2005, which of course, was spurred on by negligent lending in the subprime mortgage market.

“Sales in the distant commuter areas are the most robust,” said John Burns, founder and CEO of JBRC. “A lot of computer-oriented people have proven to their co-workers that they can be productive from home, and have sensed, or officially been given the green light to work from home at least a significant portion of the time.”

Sales of new homes were strongest in the Northeast and in Florida, where annual sales popped 86% and 84%, according to JBRC. Those sales are allowing many builders to raise prices. About 57% of those surveyed said they had bumped prices higher, with only California lagging behind and dropping prices in some cases in June. Nationally, home prices for new construction in June were 4.5% higher annually.

It is the perfect storm for the nation’s homebuilders. In anticipation of an extended recession, most of them stopped buying land in March and laid off workers. Now, when they want to ramp up and build more communities, they are up against all kinds of hurdles, including issues with local permitting offices, many of which are not running normally yet or open at all since the recession.

Builders can also raise prices because today’s new buyers are more serious and more impatient than ever. Buyer traffic is converting into sales at a record rate. In addition, consumers are largely choosing homes already built, even in the luxury segment. Consequently, the inventory of unsold, newly built homes dropped 20% in June to just a 1.5-month supply.

The issue for builders now is how to resume production quickly when they never expected this kind of recovery. Of course, if the economy staggers again and unemployment starts to rise, the prospects for housing strength continuing into the fall will weaken quickly. Despite record low mortgage rates, buyers will inevitably hit their price limit at some point. Already, in the high-priced existing home market, there are signs that demand is pulling back. So stay tuned.

Some information provided by cnbc.com, copyright 2020.

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