New Home and Resale Markets Continue Surge

By Ryan Dosen

 

Pending home sales have reached their highest level since April 2006 and the housing market finds itself gaining more and more ground as it leaves the dark recesses of the Great Recession in its rear view. New home construction is also showing many promising signs with housing permits hitting a post-crisis high. Overall, it is looking like the housing market will have its best year in almost a decade, and there are lots of reasons to be optimistic about the trend continuing.

 

Resale Contracts Hit 9-Year High

 

The National Association of Realtors’ (“NAR”) Pending Home Sales Index rose 0.9 percent in May and now sits at its highest level since April 2006. Interestingly, the Northeast was America’s strongest performing region. Pending home sales in the Northeast were up 6.3 percent in May and are now up 10.6 percent year-over-year.

In discussing the impressive resale numbers, NAR Chief Economist Lawrence Yun noted a “broad based recovery with four major regions showing solid gains from a year ago and new home sales also coming alive.” Yun attributes much of the market’s improvement to the “steady pace of solid job creation seen now for over a year …”

However, Yun cautions that home price growth is “unhealthy and unsustainable” at the current pace.

“Housing affordability remains a pressing issue with home-price growth increasing around four times the pace of wages.” Basically, the price of homes is rising much faster than the amount of money people are bringing home. At some point, something’s got to give. We are also expecting the Fed to raise rates soon, which will add another wrinkle to the affordability equation.

Many experts are forecasting rate hikes starting as early as September. When rate hikes inevitably begin, this will put downward pressure on the price of homes, likely slowing the pace of price increases. Slow wage growth hasn’t kept prices from increasing or people from signing on the dotted line, but it may also have kept things from getting too out-of-hand during the recovery.

 

New Home Construction Boom Coming?

 

NAR reports that new home sales have hit a seven-year high, new home permits have reached a post-crisis high of 1,275,000, and home builder sentiment is at its highest level since 2005. Jonathan Smoke of Realtor.com states that “the increasing level of new construction is entirely consistent with the strong demand and corresponding price gains we have been seeing in both rents and home prices …. Builders are more confident as a result of seeing more traffic.”

Demographics may also be playing a big role in the coming new home construction boom. John Burns, CEO of John Burns Real Estate Consulting, says that “even with the most conservative of assumptions, household formations will boom over the next 15 years, and we will need in excess of 1.5 million homes built per year to meet the demand… That is 50 percent more than we built last year.”

 

Happy Independence Day

 

This weekend we celebrate our great country and the independence declared by our forefathers so many years ago. The Great Recession was a dark time for America that would see many of us without jobs, without homes, and/or without much hope for the future. Seven (short? long? both?) years later we see one of the most important market foundations for our country and economy recovering to pre-recession levels and continuing its ascent. But while we celebrate our good news, let us remember that our friends in Greece have far less to celebrate. This weekend is about friends, family, food and fireworks, but it’s also about how fortunate we are to call this place our home.

 

– Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams – Brandywine Valley in West Chester, PA. Contact Ryan Dosen to inquire about buyer or seller representation or to learn more about a career in real estate by emailing ryan@waynemegillteam.com or calling 610-399-0338.

 

This article was published by 21st Century Media and the Daily Local News (West Chester, PA). To read this article on the the newspaper’s site, please visit the Daily Local News.

To view all of Ryan Dosen’s 21st Century Media real estate columns, visit http://www.dailylocal.com/search?text=dosen.