Fall usually means football and the end of baseball. This fall, all eyes are on the Fed as the threat of an interest rate increase is the main concern. Interest rates are the wild card in the continued slow but steady housing recovery. My view is that housing has “recovered” because 2006 peak prices were never sustainable.
If a rate increase occurs, there are two schools of thought on the potential impact. First is that the increase will reduce purchasing power and snuff out any further chance of continued price increases and demand. The second is that sideline (rate) watchers, those who have contemplated a home purchase, will jump into the purchase market for fear of losing out.
This second scenario will add to what we have largely seen over the past several years as a “rate-driven” demand. When we can get to a point where rate changes are offset by substantive wage growth, and both first time buyers and others can act based on needs, we will have cleared a major hurdle.
According to USA Today, economists have been puzzled by the failure of wages to rise at a faster pace despite a near-normal 5.3% unemployment rate and a shrinking pool of available workers. Despite these and other global economic issues, the U.S. real estate market can be seen as generally positive.
CoreLogic reported that national home prices in September 2015 increased 6.4 percent year over year and 0.6 percent month over month. This figure is consistent with the 6.1% report by the National Association of Realtors and is what would be considered “healthy” appreciation indicative of ½ percent per month. When appreciation starts to increase on a monthly basis, greater than half or three quarters of a percent per month, it usually signals the start of a “runaway train” market, good for sellers in the short run, bad for the overall economy in the long run.
This marks 43 months of consecutive year-over-year increases in the CoreLogic Home Price Index (HPI®).
Seven states reached new HPI highs in September 2015: Colorado, Hawaii, Nebraska, New York, South Dakota, Tennessee and Texas.
Sales of new single-family houses in September 2015 were at a seasonally adjusted annual rate of 468,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.5 percent below the revised August rate of 529,000, but 2.0 percent above the September 2014 estimate of 459,000. The median sales price of new houses sold in September 2015 was $296,900; the average sales price was $364,100. The seasonally adjusted estimate of new houses for sale at the end of September was 225,000, representing a supply of 5.8 months at the current sales rate.
Rental Watch (Featuring news from The Zumper Report) Rent prices are rising nationally. With demand for rental units in most urban centers skyrocketing, prices have continued to appreciate across the vast majority of cities we track in our report. Only 11 out of the 50 largest cities by population saw rent prices drop this October, and only 5 out of 50 in the past year.
The foundation of this trend continues to be historically low rental vacancy rates and a precipitous fall in homeownership rates. According to a U.S. Census Bureau report from the second quarter of 2015, the national rental vacancy rate dropped to 6.8%, the lowest seen in the past 20 years. Furthermore, a recent report conducted by the Joint Center for Housing Studies at Harvard University, found that the national homeownership rate declined for the 10th consecutive year in 2014, dropping to 64.5%. This softening was seen across the entire country, affecting both urban and suburban areas alike.
The past year saw a perfect storm for rising rents across the United States. As more millennials entered the workforce, and consequently the rental market, prices have surged across a number of major metro regions. Many of these young professionals have a propensity to rent rather than buy, and are drawn toward urban areas as a whole given the career opportunities and amenities.
Cities experiencing rapid population growth have also seen an asymmetry in the housing stock coming to market. In places like San Francisco, the most expensive city in the US to rent, new development has skewed to the high end as developers look to garner strong returns via the expensive plots of land they develop. Such activity has led to an affordable housing crisis for many, as demand continues to outpace supply in the middle-tier segment.
Overall, market concerns are evident; correction likely taking place where a bit overdue; days-on-market need to be monitored in the fourth quarter and winter (2016) before a discernible trend can be identified. Houston has diversified a lot over the past decade, so the market is not as dependent on the oil segment as it once was.