Good read from the NY Times as the housing market is as strong as ever. Real estate here in Telluride is equally strong....
The Housing Market Is Finally Starting to Look Healthy
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It has been an excruciatingly long time coming, but the housing sector in the United States is finally getting healthy. Thank millennials and thank homebuilders who are starting to produce more of the starter houses young people demand.
That’s the conclusion to be drawn from a new report Tuesday that shows that more new homes were sold in July than in nearly a decade. Buyers purchased single-family houses at the annual rate of 654,000, the highest rate since October 2007, the government said. That is 31 percent higher than a year earlier. Those numbers are volatile and include a wide margin of error, but combined with other evidence, the United States housing market seems to be solidly on the mend in 2016.
Builders have started work on new housing units at a pace of more than 1 million homes a year every month since April 2015, more than doubling from a low of 478,000 in the spring of 2009. Residential investment has made a positive contribution to overall gross domestic product for eight of the last nine quarters (and economists think that a drop in the second quarter was an aberration).
And in home price trends, there are some good signs, too, though not in the obvious way. In the new Census Bureau report Tuesday, the median sale price for new homes actually fell, to $294,600 from $310,500 in June. That is a strong hint that there is more supply being built at the lower end of the housing market. In other words, exactly the kind of smaller houses that young adults can afford.
“For years, the market has been practically begging builders to both ramp up their efforts over all and to put more focus on serving the less expensive end of the market,” said Svenja Gudell, the chief economist of Zillow, in an email. “Today’s data confirms both are happening in earnest.”
“The dip in price will be welcome relief to buyers struggling to find affordable inventory in this incredibly tight market.”
That data isn’t adjusted based on the size and quality of the house, meaning it implies a shift toward slightly smaller houses. But home price data that is adjusted for price and quality shows price gains that are gradual and steady — not a return to double-digit percentage rises that were evident in the boom-bust cycle of a decade ago. The S.&P./Case-Shiller home price index composite of 20 major cities has been rising at something very close to a 5 percent rate for two straight years.
That rate is a bit higher than the rate of growth in incomes, but is less worrisome than the double-digit percentage gains in home prices that prevailed continuously from the summer of 2002 to mid-2006, the peak of the housing bubble.
Here’s a narrative of the housing market over the last decade. As the housing bubble popped in 2007 and a global financial crisis and recession developed in 2008, home prices plummeted. Builders slashed their production of houses to below the level that long-term demographics would suggest is necessary to house an ever-growing population. There was a combination of oversupply from the boom years and tight credit because of the financial freeze-up. At the same time, people who had lost jobs and income because of the recession were in no position to buy.
But that was nearly a decade ago, and now we’ve had years when young adults have entered their prime home-buying time. Yet relatively few new houses to fulfill eventual demand were built. Mortgage rates have stayed near record lows, and job creation has been relatively strong. All that has been missing is homes in the right places and at the right prices for those young people to buy.
The question now is how far it has to run. Residential investment is currently 3.8 percent of G.D.P., compared with a 4.6 percent average since 1947. That implies there is further room for gains, even assuming that there is no repeat of the bubble experience from the last decade. It’s a rosy picture — and there’s reason to think it could last.