Housing Recovery: Three Things to Watch

In terms of the housing recovery, America is in a much better place than it was six or seven years ago. Most experts seem to agree that over the last 12 months, the recovery has steadily continued with a few bumps along the way. There was a 6.8 percent increase in new home sales in April from March, which was slightly better than the first quarter average of 514,000 and 26 percent better than last April’s level of 410,000.

The National Association of Home Builders (NAHB) predicts increases in single family home starts through 2016 and that multifamily starts will remain relatively healthy. I believe the following three key elements will play crucial roles in the recovery moving forward:

Mortgage Rates

Borrowing costs have remained relatively low so far this year. In mid-May, the average 30-year, fixed-rate mortgage rate was 3.85 percent. That number is consistent with the beginning of 2015 and less than last year’s high of 4.53 percent in January 2014, according to Freddie Mac. Rates could certainly be affected by an improving economy. Payrolls increased 280,000 in May, according to the U.S. Department of Labor. The jobless rate rose slightly to 5.5 percent, but wages showed growth, rising 8 cents an hour. That equates to an annualized increase of 2.3 percent. At the same time, recent reports indicate economic growth moving forward may not be as strong after timid results in the first quarter. The NAHB forecasts rates will rise in 2016, but will remain attractive at 4.6 percent.

Home Prices

The combination of job growth, historically low interest rates and steadily increasing rental costs has helped push buyers into the market. But as home prices rise faster than incomes, those same buyers might be squeezed out. The median price of a new home sold in April was $297,300, which was 8.3 percent higher than the previous year, according to the U.S. Department of Commerce. That is close to the all-time high of $302,700 set last November. Home prices increased for the 35th straight month, according to a separate measure of home prices, the Standard & Poor’s/Case-Shiller Home Price Index. The availability of affordable new homes for buyers will be critical to the recovery in the coming months and years.

Millennial Buyers

The economic and financial challenges facing millennials today are unlike those of older generations. The cost of higher education has led to unprecedented amounts of student loan debt, making homeownership difficult to afford. Data from the Federal Reserve Bank of New York shows the share of 25-year-olds with student loan debt increased from 25 percent in 2003 to 43 percent in 2012. Credit, affordability and debt are the largest roadblocks to homeownership, but some millennials are simply choosing not to buy right now. That doesn’t mean they are not interested.

Despite the challenges they may face, millennials represented the largest share of homebuyers for the second year in a row, according to a 2014 survey conducted by the National Association of Realtors. The median age of millennial homebuyers was 29, their median income was $76,900 and they typically bought a 1,720-square foot home costing $189,900. In another survey conducted by Choice Home Warranty, nearly 30 percent of millennials said they plan to buy their first house within the next five years.

It is important to point out: Each factor, standing alone, does not paint the entire economic picture that will accurately determine the direction of the recovery moving forward. I believe the direction mortgage rates, home prices and millennial buyers will take, among several other factors, could have an impact on the housing recovery over the coming months and years.



Bob Bergeth

General Manager
Builder Sales
Whirlpool Corporation