While some broader economic indicators have provided mixed signals on the health of the U.S. economy in September, the housing market continued to exhibit strength. Softer employment growth, disappointing retail sales, and the Fed’s decision to delay normalizing interest rates have called into question the level of contagion the global economic slowdown is having domestically. Furthermore, the Fed’s potential rate hike likely pushed forward some home sales as buyers attempted to lock in rates before upward pressure was applied. Overall, demand for single-family homes outstrips supply, though the gap has narrowed in recent quarters.
In September, an annualized 5.55 million single-family homes transacted, according the National Association of Realtors. The pace of transactions is the second highest in the recovery period, and nearly 9 percent above the last year’s rate. The median price for an existing single-family home was $221,900 last month, representing a 6 percent advance from September 2014. The existing-home market likely over-performed last month, though the outlook on the sector remains optimistic despite some recent fears.
According to the Department of Commerce, new-home sales slowed 11.5 percent in September to an annualized 468,000 houses. New-home sales are typically more volatile due to the smaller sample, though the headline figure came in well below expectations. However, homebuilder confidence reached a 10-year high in October based on a survey from the National Association of Homebuilders, indicative of a healthy housing market. Low borrowing costs, solid employment growth, and steady traffic from potential buyers supported the rise in builder confidence.
Diverging reports on September’s home sales point towards a market that is healthier than new-home sales suggest but not as robust as the existing-home sales figures. First-time homebuyers represented just 29 percent of buyers in September, well below the 40 percent rate considered healthy. Millennials saddled with student loan debt and preferring to live in urban areas are putting a cap on the potential strength of the housing market. Until demand from new entrants returns, the improvement in the traditional housing market will be restrained.
Sources: HomeUnion® Research Services, Department of Commerce, National Association of Homebuilders, National Association of Realtors