There are signs of robust demand for the U.S. housing market. Contracts to buy of previously owned U.S. homes has jumped to a 10-month high for the month of February. This is a good signal for spring which is historically the busiest season for the real estate market.
The National Association of Realtors said that based on the Pending Home Sales Index, it had increased 5.5% to 112.3. This is the highest figure since April 2016. This reflects the minimal impact from the current landscape of higher mortgage rates and higher home prices.
Lawrence Yun, NAR chief economist, said, “Buyers came back in force last month as a modest, seasonal uptick in listings was enough to fuel an increase in contract signings throughout the country.” The stock market’s continued rise and steady hiring in most markets is spurring significant interest in buying, as well as the expectation from some households that delaying their home search may mean paying higher interest rates later this year. Last month being the warmest February in decades also played a role in kick-starting prospective buyers’ house hunt.”
The forecasted existing-homes sales this year is around 5.57 million homes. This is an increase of 2.3% from last year. Also, the forecasted national median existing-home price for 2017 is expected to increase by 4%.
In the Northeast, pending home sales increased by 3.4% while in the Midwest it increased by 11.4%. In the South, it was up by 4.3% while in the West, it increased by 3.1%.
However, Yun said that this pending homes sales surge might not be sustainable as supply is not able to keep up with demand, particularly entry-level homes. Yun said, “The homes most buyers are in the market for are unfortunately the most difficult to find and ultimately buy. Affordability is not improving because home prices in some areas are still outpacing incomes by three times or more because of tight supply. How much new and existing inventory there is on the market this spring will determine if sales can reach their full potential and finally start reversing the nation’s low homeownership rate.”
A strong labor market is boosting demand for housing as the U.S. economy nears full employment and the labor market being able to create wage increases. However, supply constraints are pushing up home prices.
The current 30-year fixed mortgage rate is 4.23%. According to the Mortgage Bankers Association, applications for home purchase loans rose by 1.2% last week compared to the previous week.
Pending home sales last month has increased 2.6%, beating economists forecast of 2.4%.
The Atlanta Fed has a forecast of 1.0% GDP increase for the first quarter. The U.S. GDP increased by 1.9% in the final quarter of 2016.
The U.S. financial markets have not responded to this surge in pending home sales as they await further clues as to whether Fed will make more interest rate hikes for the remainder of 2017. Earlier this month, the Fed increased its benchmark overnight interest rate.
Jeff Stein March 29, 2017
Posted In: Personal Finance