U.S. housing market’s strongest performance since Q1 2006
April 28, 2014
The U.S. housing market continues to grow stronger, amidst modest economic growth. Demand is surging, construction activity is rising, and foreclosures and delinquency rates are falling.During the year to November 2013, the S&P/Case-Shiller seasonally-adjusted national home price index skyrocketed by 13.88% (12.49% inflation-adjusted), the biggest year-on-year increase since March 2006, based on the latest figures released by Standard & Poor’s. Quarter-on-quarter (q-o-q), the national home price index rose by 2.87% (3.25% inflation-adjusted) in November 2013.All 20 U.S. major cities registered strong year-on-year house prices increases in November 2013. Pheonix recorded the highest annual house price increase of 27.34%, followed by San Francisco (23.28%), Las Vegas (21.71%), San Diego (18.66%) and Atlanta (18.6%).The Federal Housing Finance Agency (FHFA)’s house price indices were also encouraging, though showed more conservative price increases. The U.S. seasonally-adjusted purchase-only house price index rose by 7.58% (6.27% inflation-adjusted) y-o-y to November 2013. On a quarterly basis, the index increased by 0.72% (1.1% inflation-adjusted) in November 2013.During 2013, the median sales price of new homes sold in the U.S. increased by 8.4% y-o-y to US$265,800, according to the U.S. Census Bureau.The total number of houses sold in the U.S. rose by 16.3% y-o-y to about 428,000 units in 2013, based on figures from the U.S. Census Bureau. After a six-year fall, demand started to pick up in 2012 when the number of houses sold increased by 20% to 368,000 units from the previous year.Construction activity is also on the rise.
In December 2013 from a year earlier:
The number of house building permits authorized increased by 4.6% to 986,000 units
The number of housing units started rose by 1.6% to 999,000 units
The total number of housing units under construction increased 28.3% to 707,000 units
The total number of housing units completed rose by 10.7% to 744,000 units
The U.S. home builder sentiment rose by 19.1% in January 2014 from the same period last year, but fell slightly by 1.8% from the previous month, according to the National Association of Home Builders (NAHB)."Following an unexpected jump last month, builder confidence has essentially leveled out and is holding at a solid level," NAHB Chairman Rick Judson said. "Many markets continue to improve and this bodes well for future home sales."Foreclosures and home repossessions are on their record lows. In 2013, the total number of foreclosure starts dropped by 33% from a year earlier, to 747,728 units—the lowest level since 2006, according to foreclosure listing firm,RealtyTrac Inc. Foreclosure starts fell in 37 states (including California, Arizona, Colorado, and Georgia) but increased in 13 states (including Maryland, Arkansas, New Jersey, Connecticut and New York). Foreclosures in the country peaked in 2010, at 1.05 million.In December 2013, Florida remained the country’s foreclosure hub, with about 306,018 homes in some stage of foreclosure or owned by banks, about a quarter of the total number of foreclosures in the U.S.Home repossessions in the U.S. were down by 31% from the previous year and the lowest level since 2007 at 462,970, according to RealtyTrac Inc.This is also in line with the data released by data analytics firm CoreLogic, which showed that completed foreclosures dropped by 24% y-o-y to 620,111 in 2013. The states with the highest number of completed foreclosures in 2013 included Florida, Michigan, California, Texas and Georgia. On the other hand, the states with the lowest foreclosures were District of Columbia, North Dakota, Hawaii, West Virginia, and Wyoming. Likewise, foreclosure inventory fell by 31% to 837,000 homes in 2013 from a year earlier.The U.S. housing market is expected to remain strong in 2014. House prices will continue rising this year, albeit at a slower pace due to more supply coming into the market, higher mortgage interest rates, and more expensive home prices. Economist John Burns expect home prices to rise by 4% in 2014 while Zillow forecasts just a 3% rise.During the fourth quarter of 2013, annualized real GDP growth stood at 3.2% from a growth rate of 4.1% in the previous quarter, according to the U.S. Bureau of Economic Analysis (BEA). Across the full year, the economy expanded by 1.9%, from growth rates of 2.8% in 2012, 1.8% in 2011, and 2.5% in 2010.
Demand rising again fast
Demand for houses is rising. The number of houses sold (seasonally-adjusted) during the first eight months of 2012 rose 20.8% compared with the same period last year, according to the U.S. Census Bureau.January to August 2012 houses sales (compared to same period last year):
Western region: sales up 37.6%
Northeast: sales up 27.1%
Midwest: sales up 18%
South: sales up 13.5%
The total number of new houses for sale was at a record low at the end of August 2012, at 143,000 units. About 55.9% of the new houses for sale are in the Southern region, 19.6% in the West, 13.3% in the Midwest, and 11.2% in the Northeast.
Mortgage interest rates falling
The U.S. Fed’s key rate remained unchanged at 0.13% in October 2012, having been cut in December 2008. The rate can hardly fall further.The fed funds rate peaked at 5.25% in August 2007.As of October 2012, the average interest rate for 30-year Fixed Rate Mortgages (FRMs) was 3.38%, down from 4.07% the same month last year, based on figures released by Freddie Mac. Likewise, the average rate for 15 year FRMs fell from 3.35% to 3.69%, while the average rate for 5 year FRMs fell from 3.03% to 2.74%.One-year adjustable rate mortgages (ARM) had an average lending rate of 2.59% in October 2012, down from 2.92% in October 2011.
Rents rising faster than house prices
The house price-to-rent ratio has been falling since 2008. From 2008 to Q2 2012, house prices have plunged deeply, while median rents have been more or less static, according to the U.S. Census Bureau.A falling price-to-rent ratio is a signal that the market has good potential for recovery, in the long term.