Broker Check

Housing Market Remains Strong

| August 03, 2016

Housing market data continues to show a strong trend in both home values and construction. The Case-Schiller 20-city home price index reported a 5.2% year-over-year increase in May. The index is now less than 10% below its peak in 2006, closing in on a full recovery from the 2006-2012 decline in housing prices.

New home sales have also picked up steam as home builders have returned to the market. New home sales have averaged nearly 50,000 per month this year. The US has not seen such strong numbers since 2007, before the housing and financial crisis in 2008-09.

Homebuilder sentiment, a measure of homebuilder optimism about the future, has also been strong. Improved employment and low interest rates have increased expectations of new home demand going forward. This is reflected in the new housing  starts data, which has also averaged its highest rate since 2007 this year. And there are signs that housing activity will continue to be strong in months to come. New home permits have averaged an annual pace of over 1.1 million per year for the past 18 months. 

Arguably, one primary factor is supporting the housing market. It is a lack of housing inventory. The pullback in home construction from 2007-2012 was a rational response to the over-supply that accumulated from 2005-07. But homebuilders were slow to start new construction following the housing recession. As a result, population growth outpaced new home starts, creating a shortage in housing. Even now the pace of new homes is likely not enough to keep up with the growth in demand, which may continue to support housing activity.