The chief economist of the National Association of Realtors called the third quarter of 2015 the best quarter for housing in a decade, the head of the New York Fed called the housing economy “solid,” and some pretty credible research shows we’re not actually in a housing bubble.
“For a while now, the housing market has been picking up the slack of the U.S. economy,” says Brianna Bobola, of . “But October’s numbers show that it was a pretty good month across multiple sectors.”
Bobola’s comments, which are drawn from an aggregate post on the website, reflect an industry-wide optimism.
The optimism comes in the middle of slumping new home build and apartment construction numbers for October, with residential starts dropping 11% - the slowest since March.
But Bobola points to the rebound in the stock market following a lackluster August and September, and the October’s jobs’ report that was the year’s best.
“October payrolls rose by the most in 10 months and the jobless rate fell to a seven-year low, while hourly earnings rose from a year ago by the most since 2009,” says Bobola. “Inflation is edging closer to the Fed’s benchmark 2%, driven by the rising costs of rent and medical care.”
Meanwhile, consumer confidence has steadied after declining for the previous three weeks as Americans’ views toward spending improved by the most in five months, according to the Bloomberg Consumer Comfort Index. Also, the University of Michigan’s preliminary consumer sentiment index for November climbed more than forecast.
Home prices nationwide, including distressed sales, increased by 6.4% in September 2015 compared with a year ago, according to CoreLogic’s latest home price index. This is up 0.6% compared to August 2015.
“CoreLogic also found distressed sales share at its lowest since September 2007,” says Bobola. “Distressed sales are expected to decline until reaching a ‘normal’ 2% mark in mid-2018.”
Interestingly, October foreclosure starts posted a 12% monthly jump—the highest increase in more than four years, according to the latest RealtyTrac Foreclosure Market Report.
But why the increase?
“For starters, it’s a seasonal trend,” says Bobola. “The holidays are coming and year’s end is approaching. But could it be a deeper economic indicator? We’ll see, but keep in mind foreclosure starts in October were still down 14% from a year ago.”
A trend that B2R is watching closely is the percentage of first-time buyers among all home buyers – now at 32%, down from 33% last year, and the lowest since 1987, according to NAR’s 2015 Profile of Home Buyers and Sellers, which is a validation that millennials are putting off home buying in favor of renting, says Bobola.
“If the Fed raises rates in December, and there’s a 70% chance they will, you can expect the increase to be nominal and gradual—likely not material enough to put people off taking out a mortgage,” she says. “But in a few years when it starts adding up, we could see more people choosing to rent than make those higher monthly payments, giving the single-family rental investor the opportunity to expand their portfolios.”