Real Estate Market Update

Reviewed: March 18, 2015
By FinanceWeb

Housing data suggests a recovery that is gaining strength on sound market principles but still showing some uneven trend lines. The housing market fundamentals are strong. The bank interest rates are low, and the overall economic recovery is strong. The strengths of the economy include low oil prices, rising employment and some increase in wages. However, the national housing markets have pockets of low inventory that has exerted upward pressure on prices. The February monthly increase in contracts for existing homes rose 1.7 percent against an expected rise of two percent. The February figure represented an increase over January, that had shown a monthly drop from December. Thus, the three-month trend was positive but uneven.

The Fundamentals are Good

Low-interest rates continue; the Federal Reserve Chair testified before the Senate Banking Committee last week and suggested that rates would not likely change in the near future. The low mortgage rates coincide with against a backdrop of continued low oil prices. The data indicates that consumers are saving on energy expenses, and when using housing financing they can get historically low rates of interest. This low-cost environment is a favorable combination that adds to consumer confidence. In a sense, family budgets are more manageable when gasoline prices, heating costs, and home mortgages rates are low.

New Home Buyers

First-time home buyers are an important part of the buying public. They are the surest sign that a recovery in the housing market has taken firm hold. Employment stability and earnings have barred many first-time buyers in recent years; the improving economy has helped many young buyers. Tight credit continues as a potential problem. Banks offer low rates but continue to scrutinize applications.

Consumer Confidence

Consumer confidence hit a high in December and dropped slightly in January. It rose again in February. At about 95 percent, the consumer outlook is extremely positive. Historically, economic optimism has consistently been an indicator of consumer interest in big-ticket items. The overall trend in consumer confidence has been strong with a positive trend line.

Spring Forecast

Data based on the surveys of private experts suggest that spring sales will show a modest increase. There was no clear consensus, and the range was broad with answers ranging from zero change to five percent increase. The major unknown is the inventory and the impact on prices. Short supply can raise prices which benefits sellers. However, higher prices discourage buyers and particularly first time buyers. On a year to date comparison, sales were up by 6.5% against private realtors forecast of 8.7 percent on the Bloomberg survey of the National Association of Realtors. Across the United States there were significant variations by region. Only the Midwest showed a decline, and the South led with a 3.2 percent jump, followed by 2.2 percent in the West region, and 0.1 percent in the Northeast.

Public Data is Stronger

The U.S. Department of Commerce issued a report on February 24, 2015 showing the New-home sales reached a six-year high in January. This continued a steady upward trend since 2012. New home sales account for a smaller part of the housing market, and today it is about 7 percent. Existing home sales account for about 90 percent of the housing sales market. A price surge in December saw overall activity decrease. Percentage increases in average prices pushed available housing out of the reach of many otherwise qualified buyers. In the end analysis, sales are more difficult in a short supply housing market. Overall, the pending sales reports capture housing activity quite well since actual closings may take place weeks or months later.