First Half Review: Housing Is Doing Well

July 29, 2016

The first half of 2016 has proven to be a boon to real estate, writes Jonathan Smoke,®’s chief economist in his monthly column. Total home sales are up 5 percent compared to the first half of 2015 and median existing home prices are up 5 percent as of June, setting a new record. Also, a rise in equity for home owners may encourage them to consider selling.

Yet, Smoke doesn’t expect the strong market to stay this strong in the second half of the year.

“All ages have been tempted by near-record lows in mortgage rates prompted by global economic weakness and instability driving investors toward U.S. bonds,” Smoke writes in his latest column. “But even with all that demand, the market can grow only so much, because of the limited inventory of homes for sale. At today’s pace of sales, existing home inventories would be used up in 4.6 months.”® estimated that in June potential buyers were up 13 percent compared with last year but there were 5 percent fewer homes for sale.

“Eventually, without substantial growth in existing and new-home inventories, sales growth will probably flatten and even decline — despite strong potential demand,” Smoke says.

That said, Smoke doesn’t believe 2017 is going to be bad.

“As long as [mortgage] rates do not increase substantially in a short period of time (such as 100 basis points over the next six months), the real estate market should remain strong,” Smoke says. “After all, the underlying reason for higher rates is a stronger economy; so the benefits of that will offset the impact of marginally higher rates. A stronger economy, more jobs, lower unemployment, and higher wages will power demand. Higher rates will also likely help loosen credit. Those positive conditions coupled with demographic tailwinds from millennials and boomers will keep the U.S. housing market healthy and strong for at least two more years.”

Source: “Housing Had a Great First Half of 2016, But Will It Last?”® (July 28, 2016)