7 Reasons the Housing Market Will Keep Booming

From sales to home prices to builder confidence, housing is going strong

Back in May 2010, over five years ago, I declared that the U.S. housing market was looking up and that it was a great time to purchase a home.

housing sold sign real estate 630And now, with some indicators showing that real estate is the healthiest it’s been in a decade, I hope I can now officially declare my previous article as a correct call.

Current and prospective homeowners can have confidence that their decision is the right one, and not just because of past success. A look at the latest numbers from the housing market show strong trends across the boards — sales, construction, prices and everything in between.

Of course, it’s possible that we will see some kind of pullback or cooling in housing. But homeowners shouldn’t let the epic pain of the previous housing crisis color their expectations forever. With each passing month, the recovery in housing looks to be not only sustainable, but even gathering steam.

For the record, I do not view any of these encouraging metrics as grounds for irresponsible speculation or reason to attend a house-flipping seminar at the airport Marriott. But that said, there are good reasons to expect home values to keep rising.

Here are seven:

Home Sales

New home sales hit a seven-year high in May, with 546,000 units blowing away forecasts of 525,000 units sold. In the Northeast, a region that had seen sales earlier this year struggle thanks to weather, new homes sold at an amazing rate that was up 87.5% over the previous month! Strong existing home sales were also encouraging for May, with recent numbers showing a 5%-plus growth rate there, too, and the strongest overall pace since late 2009.

Home Prices

Yes, the pace of increases in home prices has cooled, but given past experiences with an overheated housing market, that’s not a bad thing. According to the latest Case-Shiller data from the end of May, home values rose 5% from a year earlier in the 20-city index. Separately, real estate data firm FNC tallied a 5.3% increase in its larger 100-city price survey. So prices still are rising, albeit at a more moderate pace.

Home Equity

Digging deeper into prices and home values, CoreLogic just released a report that revealed another quarter of a million U.S. homes had equity that topped mortgage debt in the first quarter. The slow but steady trend of homeowners moving back into the black has quietly become an impressive story, with 44.9 million homes now reporting equity, or 90% of all mortgaged properties, according to CoreLogic data. Not only does this kind of environment breed confidence, it also creates stability as homeowners are not struggling to make payments on an underwater home or biting off more than they can chew.

Home Loans

The Mortgage Bankers Association reported in its latest weekly survey that applications from prospective borrowers were up 8.4% on a seasonally adjusted basis. The American Bankers Association said in its recently released annual survey that loans to first-time homebuyers have ticked up to 14%, the highest level in the history of the 22-year-old survey. More applications and loans are great, but it’s also crucial to note that the quality of those loans is strong, too. Consider the number of loans in foreclosure are at the lowest level since November 2007, with just 1.4% of mortgages in distress.

Home Construction

While housing starts pulled back a bit in May, it’s important to remember that came after a red-hot April that shows big optimism on the part of homebuilders as they broke ground on new homes at an impressive clip. The latest numbers showed upward revisions to the past two months, too, after impressive numbers previously. Also, permits surged 12% to the highest level since summer 2007 to show strong momentum that should carry this trend of robust construction through the coming months.

Builder Confidence

The National Association of Home Builders reported that builder confidence was rebounding after a slow start to the year, and up to a nine-month high. Not only did this top expectations, but it put the NAHB survey firmly in expansion mode, with a reading of 59; anything above 50 signals a favorable view. Furthermore, expectations of sales now and in the future “are at their highest levels since the last quarter of 2005, indicating a growing optimism among builders that housing will continue to strengthen in the months ahead,” according to the NAHB.

Housing Supply

There is plenty of room for new supply, too, considering that Federal Reserve data show the current inventory of existing homes is only 4.5 months, down sharply from a one-year supply at the peak of the housing crisis and back in line with 2005 levels. The National Association of Realtors reports that total listings are down 15.7% year-over-year.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/06/housing-market-home-sales/.

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