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10 Signs the Housing Market Will Keep Booming in 2015

Homebuilder stocks have lagged, but data points up for housing

After a slowdown in China, a political shakeup in Greece and a pretty volatile January for stocks at home, some investors are thinking about getting defensive in 2015.

homebuilders
Source: ©iStock.com/Sashick

But one segment of the U.S. economy remains a boon for investors: The housing market.

Yes, the major homebuilding stocks, including Toll Brothers Inc (NYSE:TOL) and PulteGroup, Inc. (NYSE:PHM), have also run into trouble since January. And yes, longer term, the sector as measured by the SPDR S&P Homebuilders (ETF) (NYSEARCA:XHB) has underperformed in the last year.

But look at the recent data, and I think you’ll agree there are many signs pointing to a booming housing market in 2015.

Here are 10 particular data points worth noting:

Housing starts are strong: Last week, housing starts hit their highest level in seven years, with new-home construction up 4.4% in December, according to the latest numbers. That pushes up 2014’s total to over 1 million housing starts, the highest mark since 2007 and up almost 9% from 2013.

Permits are strong, too: Permit numbers also looked good. While overall permits filed in December for new construction did fall a bit, the overall drop was driven by a dip in filings for apartment buildings. Regarding the all-important single-family home portion of permits, that figure actually rose at its fastest pace since January 2008, with a 4.5% increase.

Consumer sentiment is high: Thanks to a recovering job market and low gas prices, consumer confidence is at an 11-year high. As Americans feel more secure in their finances, this is naturally a boon to the housing market as folks feel confident enough to take on a mortgage and buy a house.

Housing prices still are up: While the pace of increases in home prices has mitigated, the trend is still higher. In the most recent S&P/Case-Shiller report of prices in major U.S. housing markets, prices were up 4.6%. Critics will note that’s down sharply from double-digit gains a few years ago, but it’s important to remember that the housing market crashed because of unsustainable pricing. A leveling off in growth is a good thing in the long run. And as long as prices are trending modestly upward, buyers aren’t going to be scared out of purchases.

Homebuilders are confident, part 1: According to the National Association of Home Builders, sentiment remained strong among U.S. residential-construction companies in January. While the group’s measure of builder confidence did fall slightly to a reading of 57, anything over 50 is considered positive. Furthermore, the reading is stronger than it was at the beginning of 2014, signaling good year-over-year momentum.

Builders are confident, part 2: If you want a tangible measure of confidence, consider a recent Wall Street Journal report from a Las Vegas builder trade show that noted an “air of optimism” at one of the largest trade shows in years for the business. In fact, the WSJ quotes the chief economist of the National Association of Realtors, who is projecting a 41% jump in new-home sales this year over last. That growth rate is a bit too dramatic to trust in my book, but the giddy optimism that would spark such a prediction is at least a good measure of how confident builders are feeling.

Hurdles drop for first-time buyers: In the wake of the financial crisis, regulators and the mortgage industry were concerned with enacting more stringent lending standards to stabilize the American housing market and the economy. But now, the pendulum is swinging back the other way, with the Federal Housing Administration drafting plans to boost lending to those with lower income levels and first-time home buyers. Though the idea of lenient lending practices reminds some of a return to the old days of “liar loans,” facilitating responsible lending to less-than-perfect borrowers is good for low-income Americans, and good for the housing market as a whole.

Builders cater to lower-income buyers: Lest you think this is all government-led shenanigans to help low-income homebuyers, some of the nation’s largest builders have also seen the opportunity in lower-priced homes. Specifically, D.R. Horton Inc. (NYSE:DHI) announced last spring it will build homes in the $120,000 to $150,000 range, roughly half the median home price in the U.S. — in an effort to connect with first-time buyers. Lennar Corp. (NYSE:LEN) isn’t far behind, with a project of its own in the $175,000 to $200,000 range. Connecting with “down-market” homebuyers is good for overall prices and for demand.

Foreclosures at pre-crisis levels: A recent report from real estate data provider RealtyTrac shows foreclosure filings in 2014 were down 18% over 2013, and hit the lowest level since 2006. Furthermore, bank repossessions for 2014 were down 69% from their peak during the mortgage meltdown. That’s an undeniable sign of health.

What interest-rate hike? There has been plenty of bluster in the past year or so about how rising rates will hurt the housing market by increasing the cost of borrowing. But 30-year fixed-mortgage rates are now at 3.8% while the typical mortgage was offered at a 4.5% rate a year ago. So while there may be an interest-rate increase in store for us sometime in the future, let’s not act like we won’t be able to afford a mortgage.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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