Pending Sales, Housing Construction Are Healthy

The Mortgage Corner

Most of the Federal Reserve Governors have announced they don’t support raising interest rates until sometime next, year, and only if worldwide economic growth picks up. Why? The US Dollar is so strong that it’s hurting exports, and China and emerging markets aren’t importing much these days anyway, which hurts our growth.

So housing is leading our ongoing recovery at the moment. For instance, the NAR’s Pending Home Sales Index continues to grow. Though pending home sales retreated in August, they remained at a healthy level of activity and have now risen year–over–year for 12 consecutive months, according to the National Association of Realtors. A modest increase in the West was offset by declines in all other regions.

Lawrence Yun, NAR chief economist, says even with the modest decline in contract signings, demand continues to outpace housing supply and elevate price growth in numerous markets. “Pending sales have leveled off since mid–summer, with buyers being bounded by rising prices and few available and affordable properties within their budget,” he said. “Even with existing–housing supply barely budging all summer and no relief coming from new construction, contract activity is still higher than earlier this year and a year ago.”

The national median existing–home price is expected to increase 5.8 percent in 2015 to $220,300. Yun forecasts total existing–home sales this year to increase 7.0 percent to around 5.28 million, about 25 percent below the prior peak set in 2005 (7.08 million). Actually, that has already happened with August sales already at a 5.31m rate, which has to continue to achieve his annual total.

I wrote last week that Janet Yellen’s Fed delayed their announced rate raise in September because their growth projections for the rest of 2015 and beyond have been downgraded, since inflation is still too low for sustained growth. And now both the Fed and IMF are projecting a worldwide economic slowdown.

The Fed staff’s view was already gloomy. A mistaken leak this summer by the U.S. central bank revealed, before the Fed’s June policy committee meeting, potential growth averaging just 1.74 percent over 2015-2020, according to the document now on the Fed’s website. That’s down from an average growth rate of 3.1 percent over the past 50 years. Ordinarily, those predictions would not be released for 5 years, says the Fed.

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Graph: Calculated Risk

Even better housing news was that builder confidence in the market for newly constructed single-family homes rose three points in October to a level of 64 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), according to the HAHB. This month’s reading is a return to HMI levels seen at the end of the housing boom in late 2005.

“With October’s three-point uptick, builder confidence has been holding steady or increasing for five straight months. This upward momentum shows that our industry is strengthening at a gradual but consistent pace,” said NAHB Chief Economist David Crowe. “With firm job creation, economic growth and the release of pent-up demand, we expect housing to keep moving forward as we start to close out 2015.”

Housing construction has to catch up to more normal levels of approximately 1.2 million historical units per year from the current 1.09 million units. So there is still room for housing sales to grow, as household formation picks up (which is already happening, according to Deutsch Bank).

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Graph: Deutsch Bank

This is even better news, needless to say.  Deutsche Bank predicts 1 million new households are being formed in 2015.  Millennials need dwellings as they continue to leave home and graduate from college. But much of new construction has to be in the moderate price ranges that we see in outlying areas. Even California has these regions in the southland and desert regions, mainly.

Harlan Green © 2015

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
This entry was posted in Consumers, Economy, Housing, housing market, Weekly Financial News and tagged , , , , , , , , , . Bookmark the permalink.

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