While the housing market continues to underperform its potential by 7.2 percent, the gap between actual existing home sales and the market potential for home sales narrowed by 1 percent in September compared with August, according to our Potential Homes Sales model. However, even though the performance gap narrowed a bit, the housing market still has the potential to support more than 440,000 additional home sales at a seasonally adjusted annualized rate (SAAR).
Adjustable-rate mortgages (ARMs), a symbol of the housing market crash, are making a comeback, but their resurgence is not an indicator of a potential negative turn in the housing market. An ARM is a mortgage that typically has a 30-year repayment term, but the interest rate is fixed for the first few years of the loan. Once the fixed period ends, the interest rate adjusts based on market changes.
The Federal Open Market Committee (FOMC) meeting is just around the corner and a rate hike is almost certain, according to experts, which will trigger conversations about rising mortgage rates across the housing industry. While changes to the federal funds rate won’t necessarily spur further increases in mortgage rates, mortgage rates are expected to rise nonetheless.
Yesterday’s Census Bureau report for August is an indication of strength for the housing market. While the number of permits issued, which can signal how much construction is in the pipeline, decreased by 5.5 percent, home building rose in August as housing starts increased 9.4 percent compared with a year ago. The growth in housing starts is welcomed news after two consecutive monthly declines.
Last month, we noted in our latest Real House Price Index (RHPI) report that house price appreciation may be slowing. According to our RHPI, 21 cities experienced a monthly decline in their real, consumer house-buying power-adjusted price level. One reason for the price appreciation slowdown is that 21 of the 50 largest cities in the U.S. experienced an increase in the number of houses on the market in July compared with a year ago, according to realtor.com data.
Whether students are beginning middle school or their last year of college, back-to-school season is here. Although many students may grimace when they hear “back to school,” they won’t regret pursuing a higher education as adults as they compete for well-paying jobs and one day, hopefully, buy a home.
House price appreciation remains on a tear, as unadjusted home prices nationwide increased by 7.3 percent compared with a year ago and are now 1.3 percent above the housing boom peak in 2006, according to DataTree by First American. The U.S. economy continues to perform well, as the current economic expansion reaches record levels, prompting some to ponder when it will end.
The U.S. economy remains on an impressive growth streak. Last month, the Commerce Department reported that the gross domestic product, the broadest measure of goods and services produced in the economy, grew at a 4.1 percent annualized rate in the second quarter, the strongest pace of growth since 2014. The economy has added jobs every month for 94 consecutive months, producing the lowest unemployment rate since 2000.
Limited housing supply and growing millennial demand continue to drive home prices higher across the country. Even when adjusted for income growth and mortgage rates, prices are 11.4 percent higher than a year ago, according to our Real House Price Index. Unless income growth accelerates and begins to outpace house price appreciation, or housing supply surges, prices will likely continue to rise in the coming year, which may be discouraging to renters looking to buy a home.
The short answer is yes. Home buyers looking for more housing supply to choose from can take heart, as Thursday’s Census Bureau report on housing construction showed builders are starting work on additional housing, inching closer to balancing inventory with demand.