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Kelly Evans: The scorching hot housing market

CNBC's Kelly Evans
CNBC

Yesterday's home sales report wasn't your typical "sales-up-blah-blah-blah-percent" kind of report. It was shockingly strong. The housing market is now basically as strong as it was in the heat of the housing bubble! That's pretty stunning stuff.  

"Existing home sales show the tightest housing market on record," Jefferies wrote. On record! Here are the stats: sales jumped 9.4% in September from August. Sales last month were up 20% from September of 2019. The sales pace last month, of roughly 6.5 million units annualized, is the strongest since 2006 (sales notoriously peaked at just over 7 million during the bubble before collapsing by half, see below).  

Sales in the South are actually now above their housing bubble peak in 2005. Sales in the Midwest are just below that level. Sales in the Northeast and West are still well below their all-time highs, although their "super V" rebound this year is just as strong. And inventories are much tighter now than they were in the mid-'00s. There's only 2.5 months' supply of single-family homes on the market in the U.S., and average days on the market dropped to 21--all record lows.  

Prices, obviously, are surging. Usually home prices drop 3% seasonally in September; instead they rose another 0.5% last month, and are up 15% year-on-year. Fifteen percent! The all-time peak was 16.6% during the housing bubble, as Jefferies notes. Given how tight supply is, "there is a good chance that we meet or exceed those peaks in the coming months," the firm's economists wrote.  

I asked Redfin CEO Glenn Kelman about this yesterday on Power Lunch. He also sees this boom lasting awhile longer. "There are so many people now who have decided they're not going to be able to buy a home before year-end, who expect to do so going into 2021," he said. But, he added, "there's no way this can last forever. This level of demand is absolutely insane." Redfin shares have more than doubled this year.  

Ironically, the homebuilders--one of the biggest beneficiaries of the shortage of existing homes for sale--had a lousy session yesterday. Pulte was down 5% after its guidance for fourth quarter deliveries came in shy of analyst expectations, and that put pressure on the builders across the board. Still, new orders were up 36% year-on-year, order backlogs were up a similar amount to their highest on record, and the average selling price rose to $438,000.   

Builders like Pulte were already off to a great year before the pandemic hit. Shares finally crossed back above their prior 2005 peak of roughly $42 in January, only to lose more than half their value by late March. By the end of August, they were breaking out above $47 for the first time and traded up to nearly $50 earlier this month; they closed just below $43 yesterday. That prompted RBC to upgrade the shares this morning to outperform with a $53 price target.  

The key difference between now and the housing bubble is that back then, surging prices were part of the attraction; now, at least for buyers, they're just something that has to be stomached. Ultra-low mortgage rates are keeping monthly payments in check, but already the share of first-time buyers is dipping, as analyst Peter Boockvar pointed out. "We need more new home supply to add to inventory and slow these sharp price increases, especially for the buyer of homes priced under $300,000," he wrote.  

The more active the homebuilders are, the better for the U.S. recovery. "Home sales are hot, hot, hot and tell us that this recession is definitely over," said Chris Rupkey of MUFG. But if surging prices start stoking the same kind of speculative behavior we saw fifteen years ago, watch out.  

More at 1 p.m!  

Kelly

 Twitter: @KellyCNBC

Instagram: @realkellyevans