A number of indicators will be released next week that will reveal the latest developments in the U.S. housing market. Despite the scary drop in housing starts and permits last month, the upcoming housing data for April should appear more reassuring. The current low interest-rate environment, healthy labor market, rising real personal incomes and pent-up demand for housing will power the housing market recovery to new highs in 2016.
According to the National Association of Realtors, home prices improved in 87 percent of major U.S. metro areas in Q1 2016 as demand for housing outstripped the tight supply of available listings. The most expensive areas include San Francisco and San Jose metros, where the creation of high-paid jobs in the last 2-3 years has outpaced both the nation and the state by about two times. It also caused an influx of new highly-educated and entrepreneurial migrants who accelerated the home price growth in the Bay Area. The astronomical prices in the Bay Area have forced some residents to relocate to more affordable regions, such as Modesto and Stockton, while remaining within commuting distance. The steady growth of housing prices is expected to persist throughout 2016 as we see further gradual improvement in employment and real earnings growth along with historically low mortgage rates.
The slowdown in nonfarm payrolls growth for April, released last week, helped push 30-year fixed mortgage rates down to 3.57 percent, the lowest since May 2013. Potential homebuyers in the country are expected to take advantage of the low interest rates that have been declining for most of 2016.
The headline National Association of Homebuilders’ (NAHB) housing market index for April remained unchanged at 58 where it has been over the last three month, as increases in future single-family sales and traffic of prospective buyers offset a drop in present sales. The improvement in the forward-looking subcomponents of the NAHB report suggests that the housing sector will continue to be an important source of economic growth in the near future.
Another important factor that will positively impact the housing market is the pace of household formation. In March 2016, according to the U.S. Census Bureau, the estimated number of households in the country reached 117.4 million, a total increase of 6.1 million household units since the end of Great Recession.
Household formation will continue to grow over the medium term, as more people find better jobs with better pay, stand on a more solid financial ground, and have the confidence to create independent households. According to Pew Research, the millennial generation cohort just surpassed the baby-boomers as the largest living generation. Millennials are forming new careers and starting new households as we speak and will need more housing options, so demographic tailwinds will also play a crucial role in keeping the housing market pointed in the right direction.
To find out more, check out this week’s US Outlook Report.Tags: economy, Housing, market, united states