Housing Starts Near 8-1/2 Year High

What This Means for Home Buyers and Sellers

Housing Starts Near 8-1/2 Year High
August 13, 2015

Thinking of buying a home or selling your current one? Forget “location, location, location” – in this economy, it is all about “timing, timing, timing.”

The rollercoaster of a housing market reached another high point, according to the National Association of Realtors (NAR). Existing home sales rose 3.2% in June 2015 to a seasonally adjusted 5.49 million-unit annual rate. That is a 9.6% increase in sales from the previous year and the highest level since February 2007, before the housing crisis took its toll on the market. Economists had been predicting a rate of 5.40 million units.

Prices have also been rising. The median existing home price across all housing types was $236,400 in June. That tops the peak value of $230,400 set almost nine years ago. The June rise marks forty straight months of year-over-year increases in prices.

What is the driving force behind the sharper increase in sales and price? Analysts are blaming more aggressive home buying on a recent rise in interest rates to above the 4% mark (thirty-year fixed) and the increased likelihood of an interest rate hike from the Federal Reserve. Rising wages and an improving economy are also factors — after several years of being told this is a great time to buy before rates go up, more people are beginning to believe it.

There have been other signs of an improving housing market, including increased building permits and strong housing starts. However, an undersupply of homes is still putting a damper on significant pent-up demand.

In June, the supply of homes for sale rose to 2.30 million units, but that is only a 0.9% increase from May and a 0.4% increase from last June. The unsold home inventory represents a five-month supply, well below the six-month supply considered to be the optimum balance.

While there are increases in permits and housing starts, recent construction has been aimed toward apartments and other multi-unit housing. More Americans that are starting households are renting as opposed to buying, and construction is following that increased demand. The result is a mismatch between single-family home construction (up 9.2% over the past twelve months) and new home purchases (almost twice that rate).

At the same time, a recent Census Bureau report shows that the percentage of American homeowners is decreasing. During the second quarter of 2015, 63.4% of Americans owned homes. That is a 0.3% drop from the first quarter and well below the peak of 69% in 2006 prior to the bursting of the housing bubble.

First-time homeowners are caught in a difficult situation — the supply of homes is dwindling and prices are rising faster than wages, making it difficult for first-timers to enter the market. It appears that more of them are opting for apartments as they wait for the housing situation to stabilize. Yet first-time homebuyers are important to priming the housing market. People looking to upgrade their home will not do so if they cannot sell the existing home.

If you are in a position to sell and have your housing needs covered, your timing is excellent. Prices may not have peaked, but you are in a healthy bargaining position — especially if you have a coveted starter home that is priced within reach of first-time buyers. Demand is there if you have the right supply at the right price.

If you are buying, it may be more difficult for you to find your dream home, and afford it if you do find it. You have the choice of being thorough yet patient with your search, or staying put for the interim and focusing on savings — with the knowledge that interest rates will likely be higher by the time you do buy.

Photo ©iStock.com/ericsphotography

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