Builder Confidence Climbs After Best Spring in Years

By Ryan Dosen

 

The National Association of Realtors (NAR) reports that this year’s spring real estate market was the strongest one we’ve seen in three years. Confident homebuilders are scrambling to put enough shovels in the ground to meet increased demand. Existing home sales continue to rise.

The signs and data are good for the real estate market and there’s good reason to believe that this train is building momentum.

 

Healthiest Spring Market in Three Years

Realtor.com reports that the “July housing data shows that price appreciation and inventory increases during the peak home-buying season helped the market to post the largest spring gains in three years.” Jonathan Smoke, chief economist for Realtor.com adds that “we’re ending the traditional season with high buyer and seller confidence demonstrated by price appreciation, increases in inventory, and quick home sales.”

Specifically, NAR reports that home “inventories rose 2.3 percent year-over-year, as the median list price posted a 7.5 percent increase year-over-year.”  According to Smoke, “this is the first time since the beginning of the recovery that we expect to see positive momentum throughout the second half of the year…. (Almost all) metrics point to fundamental market health and a build-up of momentum.”

 

Homebuilders Confident and Busy

The U.S. Commerce Department reports that construction of new homes reached its highest level since November 2013, rising 15.7 percent in July to a seasonally-adjusted annual pace of 1.09 million units.

Kevin Kelly, chairman of the National Association of Home Builders (NAHB) observes that “a return to production levels over 1 million confirms that consumer confidence continues to improve…. Propelled by a healthier economy, more and more people are feeling ready to buy a home.”

New single-family home starts shot up 8.3 percent to a seven-month high, while multifamily home starts soared 28.9 percent to their highest level since January 2006.

All these new home starts are a reflection of improving builder sentiment. The NAHB/Wells Fargo Housing Market Index (HMI) surveys builders from around the county and asks them to rate their sales expectations for the next six months, their confidence in current single-family home sales, and their perceptions of prospective buyer traffic.

NAHB chief economist David Crowe reported that each of the three components of the HMI “registered consecutive gains for the past three months, which is a positive sign that builder confidence appears to be firming.”

Crowe attributed this increase in builder sentiment to many positive factors, including sustained job growth, historically low mortgage rates, and affordable home prices.

 

Existing-Home Sales Continue to Climb

The NAR reports that “existing-home sales increased in July to their highest annual pace of the year, and the ongoing decline in distressed sales reached an important milestone.” Specifically, total existing-home sales, which include single-family homes, townhomes, condominiums, and co-ops, rose 2.4 percent to a seasonally adjusted annual rate of 5.15 million in July. The pace of home sales has now risen for four consecutive months. 2014’s pace still lags behind last year’s pace of 5.38 million, but NAR chief economist Lawrence Yun likes the direction in which the market is headed.

Yun says that “the number of houses for sale is higher than a year ago and tamer price increases are giving prospective buyers less hesitation about entering the market…. More people are buying homes compared to earlier in the year and this trend should continue with interest rates remaining low and apartment rents on the rise.”

 

From Beach Tags to Homework Pads

School starts for many on Monday, summer vacations are wrapping up, and our kids will have to reluctantly exchange beach tags for homework pads. But don’t let the boys and girls be the only ones doing their homework. Yun warns that home affordability is likely to suffer in the coming years as “mortgage rates will inevitably rise with the upcoming changes in monetary policy.”

Next week we will analyze the total cost of buying a home, including transaction costs, monthly payments, equity accumulated, and tax benefits.

Get ready! Dust off your calculators and sharpen your pencils. School starts for you next week and there will be homework.

 

— Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams Brandywine Valley in West Chester. Contact Ryan for buyer or seller representation or for more perspective on the local and national real estate market by emailing rdosen@megillhomes.com or calling 610-399-0338. Please also visit The Wayne Megill Team blog at www.PAHomesAndRealEstate.com.