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June 27, 2016

Housing Demand Rises, Supply Is Bigger Issue

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Housing Demand Rises, Supply Is Bigger Issue

Several signs in the housing market point to higher demand for real estate, but the big question remains whether the supply will be able to meet the rise in demand, writes Jonathan Smoke, chief economist at realtor.com®, in new commentary at realtor.com®.

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“Supply is quickly becoming the biggest concern for healthy growth in home sales in 2015,” Smoke notes.

Smoke points to the following three positive signs showing higher demand in the housing market:

Builders are more confident: Builders are remaining upbeat about the new-home market. The National Association of Home Builder’s Housing Market Index recently showed builder sentiment on the rise, with builders optimistic about the six-month outlook in the new-home market. New construction is starting to follow suit. Housing starts rose 4.4 percent in December, with that rise driven by an uptick in single-family construction. Single-family starts are at the highest number in six years, reaching a pace of 728,000 units in December. “That is a good early sign that homebuilders are gearing production for greater demand in the spring,” Smoke notes. 

Low mortgage rates: Mortgage rates continue to hit new yearly lows, bringing borrowing costs down for home buyers and refinancers. As such, mortgage application activity rose to its highest level since June 2013 recently. The 30-year fixed-rate mortgage averaged 3.63 percent last week, it’s lowest weekly average since May 2013, according to Freddie Mac. But economists are warning that the low rates won’t likely stick around much longer and could move up to 5 percent by the end of the year.

Existing-home sales rebounding: Demand has been growing in the existing-home sales market too. The annual pace of existing-home sales was 5.04 million in December, 3.5 percent higher than last year, according to the National Association of REALTORS® latest report

Housing supply remains the biggest issue, Smoke says. The inventory of existing-homes is at a 4.4-month supply at the current sales pace – well-below the 6-month supply that most economists consider healthy, according to NAR’s December report.

“We need more markets to see listing growth over the next several weeks to keep appreciation at healthy, normal levels,” Smoke says.  “With three years of positive price appreciation behind them, existing-home owners in most areas should see conditions as very favorable for trading up. That is what the market needs to set the stage for significant growth this spring.”

Source: “Demand for Housing Is Up, But How About Supply?” realtor.com® (Jan. 23, 2015)