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U.S. Housing Market and Rental Update, Q1 2016 04.2.2016 | Joe Palumbo

Normally around this time of year, we start having internal discussions about why the real estate market activity has been sluggish or why transfer volumes are not as anticipated. For the past two years this was a short discussion and the convenient scapegoat has been “the weather” and the “slow winter season.”

This year, however, I would be hard pressed to call the market sluggish and I could not possibly in good conscience blame the weather. With employment steady and home sale activity strong (up 11% from a year ago) the spring market looks like a favorable one for most mobility programs, provided that companies are still implementing our best practices, which include requiring employees to list aggressively at the onset of the marketing period. With a sellers’ market prevailing in most regions, employees can expect robust showing activity which should translate into faster employee sales, provided they are realistic in their asking price.

January, as it turns out, gave up late holiday returns according to the National Association of Realtors (NAR), as sales of existing homes unexpectedly rose to a six-month high—the latest sign that the economy remains on firmer ground despite slowing global growth.

NAR also reported:

  • Home resales increased 0.4 percent to an annual rate of 5.47 million units, the highest level since July.
  • Home resales were up 11 percent from a year ago, the largest year-on-year gain since July 2013.

The housing sector continues to be supported by a tightening labor market, which is starting to push up wage growth, improving the formation of new households. First-time buyers accounted for 32 percent of existing-home sales in January, an increase from 28 percent during the same period last year.

Despite the strength in housing, a lack of properties available for sale remains a challenge. The number of unsold homes on the market rose 3.4 percent to 1.82 million units in January from December, but was down 2.2 percent from a year ago.

CoreLogic also released some interesting housing data, including:

  • Single Family Home prices rose by 6.9 percent from January 2015 to January 2016 including a 1.3% increase from December 2015 to January 2016.
  • The U.S. has experienced 47 months of year-over-year price increases.
  • Nine states reached new price highs in January 2016: Colorado, Hawaii, North Carolina, Nebraska, New York, Oregon, Tennessee, Texas and Wyoming.
  • Cash sales accounted for 36.4 percent of total home sales in November 2015, down 0.7 percentage points year over year from 37.1 percent in November 2014. The cash sales share peaked in January 2011 when cash transactions accounted for 46.6 percent of total home sales nationally. Prior to the housing crisis, the cash sales share of total home sales averaged approximately 25 percent.

A decrease in cash sales albeit a small change is a sign that credit is available and the investor portion of buyers is decreasing, both positive signs for the housing market.

New construction data also shows a housing market improving at a moderate but steady pace. According to the National Association of Homebuilders (NAHB), markets in 117 of the approximately 340 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity in the fourth quarter of 2015. This represents a year-over-year net gain of 52 markets.

“Housing markets are strengthening gradually as the economy firms and job creation continues,” said NAHB Chairman Ed Brady. “While some areas are recovering at a faster rate than others, the large majority of metros are moving in the right direction.”

“Among the Leading Market Indicators (LMI), house prices continue to show the most extensive recovery, with 322 markets having returned to or exceeded their last normal levels. Meanwhile, 76 metros have reached or exceeded normal employment activity,” said NAHB Chief Economist David Crowe. “Single-family permits are edging forward, but remain at only 48 percent of normal activity.”

Buying is more affordable than renting in 58% of U.S. housing markets according to RealtyTrac®’s 2016 Rental Affordability Analysis, with rents outpacing wage growth in 57% of markets.

Across all 504 counties analyzed, average wage earners will need to spend 37 percent of their income on rents for a three-bedroom property in 2016, slightly less than the 38 percent of income to make monthly house payments — assuming a 3 percent down payment and including mortgage, taxes, insurance and mortgage insurance—on a
median priced home on average across all 504 counties.

Renting was more affordable than buying in 213 of the 504 counties analyzed (42 percent), including counties in Los Angeles, Houston, San Diego, New York City (Brooklyn), and Dallas. Buying was more affordable than renting in 291 counties (58 percent) including counties in Chicago, Phoenix, Miami, the Inland Empire of Southern California, Las Vegas and Detroit.

Rental demand is up significantly in part because so many people want the flexibility associated with renting but also because millennials are delaying big life decisions (like buying a home) and have difficulty saving for a deposit. High demand makes finding a suitable rental more challenging than ever. Renters should prepare for their home finding trip in advance and companies should provide paid rental finding services to expedite the process and ensure that employees have the broadest array of rental options at the destination. In the long run, this will reduce costs (of temporary living or exceptions).

Lastly, Zumper recently identified the top four U.S. Rental Markets:

  • San Francisco, CA held fairly stable last month, as rents increased a slight 0.3% to $3,500 for a one bedroom. The city maintained a strong lead ahead of second place, New York, despite recent softening in the market. Rents are down 4.6% in the past quarter for one bedroom units.
  • New York, NY dropped 1.8% for one bedrooms to a median of $3,220. However, prices in the City are up 7.3% and 3.1% in the past year for one and two bedroom units, respectively.
  • Boston, MA has seen a slight dip over the past quarter, but still remains third place on our list at $2,340 for a one bedroom. Prices are down 2.5% and 4.3% this past year for one and two bedroom units, respectively.
  • San Jose, CA regained fourth position on our list, swapping places with Oakland. San Jose has the highest yearly rent growth of any city on our list, up 19.5% for one bedroom units.

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Written by Joe Palumbo

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Joe Palumbo, SRA, is Vice President of Real Estate Services for Weichert Workforce Mobility. He has over 30 years of real estate experience and has been qualified by the New Jersey and New York State Board of Real Estate Appraisers as an instructor of Residential Real Estate. He is a State Certified Residential Appraiser and licensed Realtor and was named to the New Jersey Board of Real Estate Appraisers in 2011.

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