U.S. new home sales rise in April despite COVID-19

U.S. new home sales rose in April amid the coronavirus crisis. ING Regional Head of Research Padhraic Garvey joins Yahoo Finance’s On The Move to assess the state of housing.

Video Transcript

ADAM SHAPIRO: Last week, we saw that existing home sales fell month over month down about 17.8%. But then this morning we saw that the values of homes that are for sale have been going up for instance the S&P Core Logic Case Shiller Index saw nationally prices going up about 4.4 percent in March. But hold on, that may not last. We want to get a full understanding of this. And to help us understand this is Padhraic Garvey. He is the ING regional head of research for the Americas joining us here in New York. It's good to have you here, Sir. What do you make of the Case Shiller index going up, because they're saying be careful?

PADHRAIC GARVEY: Yeah, I think I think you've got to be a bit careful. It's backward-looking. It's the past number of months. It's really pre this awful crisis we've had over the past few months. I think if you look at the housing market, generally speaking, it's down 20% to 30%, whether it's home sales or housing starts. Mortgage applications also well down.

I was quite impressed with the numbers this morning, in fact, the fact that there hasn't been a deeper dive in terms of home sales. They're actually back to where they were last month. So the market was expecting something worse than that.

And I've also been impressed with the rise in mortgage applications. They've really snapped back. But I have to say, looking forward, it's-- it's difficult to get bullish on house prices from here. There's been such a demand shock. It's what the housing market survives off. So I would expect there'll be tough times ahead.

JULIE HYMAN: So what does that look like? I mean, because if you look at the what appears to be resilient command thus far, what would account for it going away? Is it-- is there a lag, for example, between people losing their jobs and then the housing market as well? We know the housing market, what, it does tend to be a lagging indicator, correct?

PADHRAIC GARVEY: Yes, it does. You know, let's look at the positives. The positives are that mortgage rates are back at historic lows. So you can get tremendous deals out there today in terms of the cost of financing. But that's not really what drives housing market. What drives housing market is demand for housing. Demand for housing is a function of confidence. And confidence is a function of the labor market. The labor market is a function of employment. And clearly, there's been a massive hit there.

I mean, even for those that are employed today, it's hard to get super confident. So that's going to be a dent in terms of demand for general housing over the next number of months and probably quarters.

MELODY HAHM: But just thinking about how sometimes competence is informed by opportunity, I think some of your research shows that the average age of a first time home buyer is 33. I imagine there are many 33-year-olds, perhaps potential first-time home buyers, who are actually looking at this market hoping for home sales to go down. And they hope that it's not a bullish outlook. Are you getting a sense of that in your research?

PADHRAIC GARVEY: Yeah, we're looking at that very carefully because going back to the point that mortgage applications today are pretty much where they were at the end of 2019, which is really positive. So I think we've got to look at the quality of those mortgage applications. The more they are the type of person you described, the better. What we don't want is to see a whole series of mortgage applications from so-called bottom pickers, guys coming in to pick up some cheap property.

What we see so far is that it's a bit of both, which is pretty typical. But I think I would still see this as being positive because I think you can very easily tell a very negative story about the housing market. So the fact that the-- that the numbers haven't collapsed and look to be on a bit of a revival is a positive thing. You know, I still think it's going to be a difficult few months and quarters, having said that.

ADAM SHAPIRO: Padhraic, what about the story, the headline of high-tax states losing residents to low tax states. We had one guest last week who said, look, you'd have millennials who are having children move to suburbs anyway. That would have happened. What do you make of this storyline? Is it legit?

PADHRAIC GARVEY: You know, it's-- it's-- it's one of many stories out there. And it's-- it's-- it's a guess at the future. And I think it's really difficult now. And that's what we do. I mean, I-- I spend my day trying to predict the future in terms of financial markets and interest rates and supply, demand. And we can all come up with some very good guesses. The big narrative now is that cities are dead and suburbs are the place to be. To be seen.

I mean, cities are survivors. And you know, people will-- will live where they find the best possible set of circumstances. So you know, a lot of speculation, nothing for sure. And I think the other thing as well is that the US is a country with many different types of housing market. I mean, the New York housing market that I'm sitting in is very different from the housing market in-- in-- in-- in in West Coast or Florida or many other centers across the US. So it's-- it's very difficult to generalize.

Things will change. But we wouldn't expect to see a big bang change here.

ADAM SHAPIRO: I think people would put money on your guess a lot quicker than they would put money on a guess from the rest of us. Padhraic Garvey, thank you so much for joining us, the regional head of research for the Americas at ING. And we're going to be back right after this.