Yahoo Finance Economist sees 'a potential rally' in the housing market
New home sales are surging. New construction is on the upswing. And home prices are bouncing back. The trifecta of datapoints is enough for one economist to say the housing market has bottomed.
"So it appears to me that after about a year of some slowdown in general — in housing activity and disinflation and home prices — that we're now seeing a floor and then a potential rally," Brad Dillman, Chief Economist at Cortland, told Yahoo Finance Live (video above).
The biggest case for a rebound is coming from the new construction market.
Limited inventory in the resale market has prompted more buyers to flock to the new homes market. Sales of newly built single-family homes rose for the third month in a row in May, up 12.2% from April – and a 20% gain over last year, according to the government data released last week.
As a result, there were 428,000 new homes for sale by the end of May, which represented 6.7 months of supply at the current sales rate.
"That corresponds with some of the activity that we've seen in housing starts, in general," Dillman said. "The last housing starts print was very, very strong."
Data from the Census Bureau showed new construction for both single and multi-family units climbed 21.7% to a seasonally adjusted annual rate of 1.631 million units in May. That’s a 5.7% gain compared to a year ago and above the 1.4 million units economists polled by Bloomberg estimated. Permits to build also jumped 5.2% to an annualized rate of 1.491 million units in May from a revised 1.417 million the previous month.
"The new housing starts data would tell us that it's increasing again close to 1.7 million housing units under construction, that's enough to rebuild every house, every home in Connecticut, and then half of Wyoming," Dillman said.
The mass of homes under construction comes as homebuilders are staying ahead of the game, polishing their outlook for the year.
"With respect to demand, buyers are adjusting to higher mortgage rates and the continuation of a more stable rate environment is a positive factor," KB Home President and CEO Jeffrey T. Mezger said during the company's second-quarter earnings call.
Mortgage rates have settled between 6% and 7% this year, rising this week to 6.81% — the highest point of the year. Those elevated levels are one of the main contributors to the lack of affordability and have also encouraged rate-conscious homeowners to stay put rather than list their homes and move.
The deficit of homes has weighed on the sales of previously owned homes. The number of homes listed was at the lowest inventory count on record in May, the National Association of Realtors reported, adding to the high rate environment buyers also face.
"It's a challenge for anybody trying to buy a home today," Dillman said.
Thanks to the lack of inventory, homes are selling close to their record highs set last year, Redfin data found. The median sale price is down 0.9% annually, indicating the smallest year-over-year decline in almost four months. A typical home is going for $383,000, about $4,000 below last June’s all-time high.
"The market isn’t nearly as fast as it was 18 months ago, when homes were flying off the market for well over asking price, and it’s not as slow as it was six or seven months ago, when mortgage rates first shot up," said Oakland, Calif., Redfin Premier agent Andrea Chopp.
"Buyers should keep in mind that desirable homes are getting multiple offers and selling above asking price. And sellers should know that their home may not attract as much competition as their neighbor’s home did two years ago, but it will sell if they price it fairly and put effort into marketing. Things like making small repairs and staging are important again."
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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