Good Pending Sales, Home Prices in 2015

The Mortgage Corner

Pending home sales are rising again. Sales picked up steam in November, to 104.8 from a revised 104.0 in October for a better-than-expected gain of 0.8 percent. It is a sign, along with the Case-Shiller Home Price Index, that the housing market will pick up in 2015.

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Graph: Econoday

Pending sales had been declining since last September, and only began to rise again this January. But they are still below post-recession highs. Rising prices may be the culprit, as the Case-Shiller Home Price Index rose 13.5 percent in 2014, but has now settled back to moderate 4.5 percent annual increases in recent months.

“The consistent economic growth and steady hiring we’ve seen the second half of this year is giving buyers enough assurance to consider purchasing a home before year’s end,” said NAR chief economist Lawrence Yun. “With rents now rising at a seven-year high, historically low rates and moderating price growth are likely to entice more buyers to enter the market in upcoming months.”

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Graph: Econoday

Where are those new buyers coming from? The main reason could be fresh data that show those 18 to 25 year-olds are finally leaving home, or school, when the lack of first-time homebuyers has kept existing-home sales from breaking out of a narrow range since 2009 and the end of the Great Recession. This is while housing prices have moderated their double-digit climb in 2014, making housing more affordable to those now able to find jobs.

Case-Shiller’s 20 city year-on-year index for October (both adjusted and unadjusted) came in soft, at plus 4.5 percent, says Econoday, down 3 tenths from September. This is the lowest rate since October 2012 and follows a full year of low double digit gains through much of 2013 and into April this year.

So ‘the times they are a changin’. Household formation is increasing again, and history says at least 50 percent of those new householders will purchase a home. Fortune Magazine has just cited Neil Dutta, head of economics at Renaissance Macro Research, who pointed out in a note to clients that household formation in 2014 through September is already at its highest rate since 2005.

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Graph: Fortune.com

The employment rate for folks aged 25 to 34 has grown 2.8 percent over the past year, about 29 percent faster than the overall employment rate, and they make up the largest generation ready to enter the housing market, larger than their baby boomer parents.

And don’t forget those record low interest rates, now back to last year’s pre-April rates, before Fed Chair Bernanke announcement that QE3 would end. The 30-year fixed conforming rate is now down to 3.50 percent with 0 origination points in California, for those with the best credit scores.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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