Economy Likely to ‘Spring Forward’

Economy Likely to ‘Spring Forward’. Image courtesy of sattva / FreeDigitalPhotos.net

Economic activity weakened in the first quarter of the year, mostly attributed to bad weather conditions across the Northeast and West Coast port disruptions. But the economy will likely gain momentum throughout the spring, which is expected to give a lift to the ongoing housing recovery, according to Fannie Mae’s Economic & Strategic Research Group.

“We have downsized our first-quarter economic growth expectations in light of several transitory factors that weighed on consumption,” says Doug Duncan, Fannie Mae’s chief economist. “Although some momentum was lost in the first quarter as consumers remained cautious in their spending, perhaps putting an emphasis on repairing their personal balance sheets and replenishing savings, we expect that consumer spending will catch up during the second quarter and continue in subsequent months, supporting our forecast of 2.8 percent growth for the year. We believe this momentum will carry over into the housing market, as well, particularly if strong consumer income growth continues.”

However, Fannie Mae economists caution that there could be some volatility, particularly with consumer spending and the financial markets, leading up to the Federal Reserve’s first expected rate hike in the coming months.

Source: “Q1 Economic Growth Measures Downsized, But Expected to Spring Forward,” Fannie Mae (April 20, 2015)

Housing Starts Rise, Builders Remain Cautious

Housing Starts Rise, Builders Remain Cautious. Image courtesy of Serge Bertasius Photography / FreeDigitalPhotos.net

The new-home market continues to make gains, albeit at a gradual pace as some price sensitive buyers remain on the fence, says Tom Woods, chairman of the National Association of Home Builders on the latest new-home data.

Construction of newly built single-family homes edged up 4.4 percent in March month-over-month, while multifamily starts dropped 2.5 percent, the Commerce Department reported Thursday. Overall, nationwide housing starts – which reflect combined starts for the single-family and multifamily sectors – rose 2 percent in March to a seasonally adjusted annual rate of 926,000 units.

“Builders are being careful not to add inventory beyond expected demand, especially as they struggle with increasing costs for lots, labor and materials,” says NAHB Chief Economist David Crowe. “However, pent-up demand, low mortgage interest rates, and a growing economy should keep the housing industry moving forward throughout the rest of the year.”

Regionally, housing starts posted the highest gains in the Northeast. Combined single- and multifamily housing starts surged 114.9 percent month-over-month in the Northeast, and the Midwest also saw a gain of 31.3 percent in March. Meanwhile, housing starts dropped 19.3 percent in the West and by 3.5 percent in the South.

A slight decline in housing production may be on the horizon, however. Housing permits – a leading indicator of the health of the new-construction industry — fell 5.7 percent in March, led by a 15.9 percent drop in multifamily permits. Single-family permits, on the other hand, rose 2.1 percent – with the strongest gains in permits in the Northeast.

“There is a continuing under performance of the new-construction market, but it’s still better than where we were,” says Jed Smith, managing director of quantitative research at the National Association of REALTORS®.

To return to a more normal market, Smith says builders need to construct 1.5 million to 1.6 million new homes this year. Builders are on track for 1.2 million, he says.

But there’s no reason to panic, housing analysts say. Housing permits overall are still up 8 percent from year to date.

“In some regions, we’re seeing double-digit gains,” says Jonathan Smoke, realtor.com®’s chief economist. “It shows we’re making progress—it’s not even remotely enough to relieve the inventory shortage, but we’re moving in the right direction.”

Source: “Building Permits Drop 5.7% in March, But It’s All Good,” realtor.com® (April 16, 2015) and National Association of Home Builders

The 5 Hottest Single-Family Markets Are…

The 5 Hottest Single-Family Markets Are… Image courtesy of stockimages / FreeDigitalPhotos.net

The national housing market is regaining steam after a slowdown in late 2013 and early 2014 and a handful of areas are seeing a surge in home prices and sales growth.

Auction.com highlights the “hottest” major single-family markets based on current and expected future housing measures. Of the 49 largest U.S. markets, the five emerging at the top of the rankings have shown consistently strong demand, home price appreciation, and economic and demographic growth. Three of the top five ranking markets are located within the Southwest region, and two are located in the Southeast.

“The five top rated markets display strongly rising home prices, favorable affordability, strong housing demand and excellent economic and demographic conditions for future demand,” according to Auction.com’s report.

The top five single-family housing markets, which reflect a strong, healthy single-family market likely for the next few years, are:

1. Denver, Colo.

Home price growth year-over-year: 9.2%

Home sales growth year-over-year: 4.6%

2. San Antonio, Texas

Home price growth year-over-year: 4.3%

Home sales growth year-over-year: 5.5%

3. Nashville, Tenn.

Home price growth year-over-year: 6.2%

Home sales growth year-over-year: 4%

4. Fort Lauderdale, Fla.

Home price growth year-over-year: 7.8%

Home sales growth year-over-year: 2.3%

5. Dallas, Texas

Home price growth year-over-year: 7.3%

Home sales growth year-over-year: 5.5%

Source: “Top Single-Family Housing Markets: Spring 2015,” Auction.com (April 2015)

Signs Now Point to a ‘Sustainable’ Recovery

Image courtesy of jscreationzs / FreeDigitalPhotos.net

Last year, the spring selling season failed to meet market expectations, but many housing analysts say that 2015 will be different and the market may have finally reached a long-awaited “sustainable recovery.”

In cities that have seen major job growth, home sales surged to double-digit gains in March year-over-year. For example, Seattle has seen a 17.7 percent increase in sales year-over-year and a 20.3 percent sales gain has occurred in Charlotte, N.C. In Jacksonville, Fla., sales of existing homes were up 18 percent in March year-over-year.

“It feels like 2005 again,” Sanford Davidson, a Redfin real-estate agent in Jacksonville, told The Wall Street Journal. “Homes are moving that quickly, especially if they’re in the right neighborhood and priced right.”

Home sales are expected to post further gains across the country too, according to the National Association of REALTORS®’ pending home sales index, which tracks signed home contracts. The pending home sales index in February surged 12 percent year-over-year. Pending sales were up 30.6 percent in Houston; 30 percent in Jacksonville, Fla.; 27.8 percent in San Diego; 24.2% in Seattle; and 23.7 percent in the Riverside and San Bernardino markets in California.

Sales of newly built homes in February reached its strongest pace in seven years. New-home starts were at a seasonally adjusted annual pace of 539,000 in February, the Commerce Department reported.

The uptick in home sales in recent months is early indication that the “market is continuing to improve at a very steady pace,” Stuart Miller, chief executive of Lennar Corp., said in a conference call with investors last month. The nation’s second largest homebuilder reported an 18 percent sales gain in the quarter ending Feb. 28, compared to a year earlier.

Last year, the spring selling season failed to meet market expectations, with sales of new and existing homes in 2014 mostly flat. The dismal selling season last year was most attributed to, at the time, continued weak consumer confidence, steep home price increases from the previous year, and an uneven economic recovery, The Wall Street Journal reports.

But housing analysts believe 2015 is different. Here are a few reasons why:

• An improved economy: The economy has added 3.1 million jobs in the past year alone. Also, low gas prices lately have helped to lift consumer confidence.
• Mortgage lending is easing: Lenders have shown signs of easing tight borrowing requirements and costs (see FHA Lowers Its Mortgage Costs and 3% Down Payments May Be Game Changer).
• Boomerang buyers return: Former home owners who had lost their home to foreclosure in the aftermath of the financial crisis have repaired their credit and many are stepping back in to try to qualify to buy a home again.

Source: “Housing Market Sees Hopeful Signs of Spring,” The Wall Street Journal (April 9, 2015)

Real Estate Likely to Ride a 3-Year Wave

Real Estate Likely to Ride a 3-Year Wave. Image courtesy of Gualberto107 / FreeDigitalPhotos.net

The real estate industry is expected to strengthen this year and continue to get stronger through 2017, according to a new report released from the Urban Land Institute Center for Capital Markets and Real Estate, which is based on a survey of the industry’s top economists and analysts.

Survey respondents said that the residential, single-family housing sector remains in recovery mode and economists predict that housing starts will rise from 647,000 in 2014 to 700,000 in 2015; to 815,000 in 2016; and 900,000 by the end of 2017.

Economists predict that existing home prices will rise through 2017 — rising 5 percent this year; another 4 percent in 2016; and by 4 percent in 2017.

“In summary, almost all U.S. real estate participants would be very pleased if the future unfolded as predicted by the ULI consensus forecast,” says ULI leader William Maher, director of North American strategy for LaSalle Investment Management in Baltimore. “The forecast represents almost the perfect combination of strong economic and property market fundamentals, combined with an orderly wind-down of monetary stimulus.”

Although an economic downturn could throw off these predictions, as well as interest rate spikes or oversupplies, “real estate pros predict three more years of smooth sailing for U.S. real estate,” Maher adds.

Survey respondents were also upbeat with their forecasts for the commercial market, including:

• Office sector: Respondents expect rental rates in office space to rise 4 percent this year, 4.1 percent in 2016, and 3.5 percent in 2017.
• Apartments: Respondents expect rental rates continue to push upward, rising by 3.5 percent in 2015, 3 percent in 2016, and 2.7 percent in 2017.
• Retail: Analysts expect that rental rates in the retail sector to rise by 2 percent in 2015, 3 percent in 2016, and 2.9 percent in 2017.
• Industrial/warehouse: Analysts expect rental rates in the warehouse sector to rise by 4 percent this year, 3.8 percent in 2016, and 3.1 percent in 2017.

Source: Urban Land Institute