The Mortgage Corner
“New data indicate that in 2016, in defiance of myriad prognostications, the decade-long decline in the homeownership rate abruptly reversed. Once-rapid growth in renter households stalled, and the long-stagnant number of owner-led households began rising,” says the Washington Post’s Andrew Van Dam.
The homeownership of American households peaked at the height of the housing bubble at 69 percent, and only now has returned to post-recession levels. This is confirmed by several other indicators, including the big jump in household formation by the millennial generation, children of the baby boomers, in particular who are now 22 to 38 years of age. It took them this long to buy because of the Great Recession that depressed incomes and huge amount of college debt.
And builders are beginning to realize that fact, as housing starts jumped back to historical levels in January to a 1.230 million annual rate. After falling 28 percent in December, starts in the West jumped 29 percent in January, as California began to recover from the record number of wildfires. The biggest region for home builders is the South where January starts rose 14 percent to more than reverse December’s nearly 8 percent decline, which were also weather-related.
Another reason for the rise in homeownership has to be steadily rising rents since they hit bottom in 2008, and mortgages rates still at almost record lows. “In the middle of 2015, rents nationally rose more than 6 percent from a year earlier — easily their fastest growth since the real estate data experts at Zillow began keeping track. It is one of the few times on record that rents rose faster than home prices,” said Van Dam.
The last piece of the housing puzzle is the moderation of housing prices that no longer rise at 5 percent per year. The Case-Shiller same-home index year-on-year prices were up only 4.2 percent in the month which missed expectations by a very sharp 6 tenths. This is the lowest growth rate since November 2014 and compares with FHFA’s 5.6 percent rate for December which was a 3-year low.
The surge in new households, as well as record low mortgage rates, have helped new-home sales as well. New home sales jumped 3.7 percent in December to a 621,000 annual rate that is on the high end of expectations, though December’s year-on-year rate is still minus 2.4 percent.
We therefore see a steady improvement for home sales in 2019, since I predict interest rates could stay this low for the foreseeable future. Why? Economic growth is slowing, while consumer incomes are rising above inflation rate, and there is still a housing shortage.
Harlan Green © 2019
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