This month, the market potential for existing-home sales increased to a 6.1 million seasonally adjusted annualized rate (SAAR), a 0.4 percent month-over-month increase, and a gain of 210,000 (SAAR) sales from January 2017. The gap between actual market performance (existing-home sales) and market potential (potential home sales) has significantly narrowed as actual existing-home sales have surged in recent months. Nonetheless, the housing market is still underperforming its potential.
As we analyze yesterday’s housing starts data, it’s important to also consider the impact of construction labor on the velocity of new home construction. The employment situation report, released earlier this month, reported an increase of 5,000 residential construction jobs between December 2017 and January 2018. The number of residential construction jobs is now 1.3 percent higher than a year ago. The growth in residential construction jobs supports further improvement in the pace of home building because building a home does not readily lend itself to outsourcing and automation.
Whether you plan to buy a modest studio or a four-bedroom penthouse, how much you can afford to borrow primarily rests on two main factors: income and interest rates. Income growth seems to be increasing, thus increasing affordability. However, the near certainty of future rate hikes will likely be a drag on affordability.
That nominal house prices are growing faster than household incomes is often used as the basis for arguing that we are facing an affordability crisis. It is true that unadjusted house prices grew faster than income between November 2016 and November 2017. Our Real House Price Index (RHPI) showed that unadjusted house prices increased by 6.0 percent in November on a year-over-year basis and are 6.3 percent above the housing boom peak in 2007. Over the same 12-month period, household incomes have increased by significantly less, 2.8 percent.
It’s been just over five years since house prices reached their trough and the housing market bottomed out. In the years following that low point, there has been a lot of discussion about how to increase demand and, specifically, why young adults today didn’t want to buy homes. I believed that the lack of desire among millennials was not a generational shift of interest away from homeownership toward perennial renting, but a matter of timing and lifestyle choices. The desire to become a homeowner simply emerged later in life than with prior generations.
First American’s proprietary Potential Home Sales model examines December 2017 data and includes analysis from First American Chief Economist Mark Fleming on how the real estate market is performing versus its potential.
The end of 2017 brought mixed news for housing starts, according to Thursday’s release of December 2017 housing starts data, which marked the first report on national housing data this year.
First American’s proprietary Potential Home Sales model examines November 2017 data and includes analysis from First American Chief Economist Mark Fleming on how the real estate market is performing versus its potential.
It’s a near certainty that the Federal Open Market Committee (FOMC) will raise the short-term Federal Funds rate this week. The CME group estimates the probability of a 25 basis-point increase at 90.2 percent. Some may fret about how this will impact the housing market, but they are missing the point on mortgage rates and affordability for first-time home buyers.
First American’s proprietary Potential Home Sales model examines October 2017 data and includes analysis from First American Chief Economist Mark Fleming on how the real estate market is performing versus its potential.