Housing on a Tear

January Pending Home Sales: +4.5%.  Contracts to buy homes swelled nationwide, gaining more than the 3% expected.  December’s drop was spared to only a 2% drop, from an initial 4.3% decline.  Every single region showed gains, pushing the yearly measure higher for 21 consecutive months.  The Western region showed the smallest gain, constrained by inventory shortages.  NAR economists now suggest that these lower inventories have finally shifted the supply / demand balance to favor sellers, meaning higher prices and sales. If inventories continue to remain low, the NAR expects 7% price growth this year, up from the 5-6% forecast, and 5 million homes sold annually. Nice.

  • Northeast:        +8.2%              to 84.8             +10.5% annually
  • Midwest:          +4.5%              to 105.0           +17.7% annually
  • South:              +5.9%              to119.3            +11.3% annually
  • West:                +0.1%              to 102.1           -1.5% annually

This report is so strong that at 105.9, only two months have shown higher readings, in 2007 (at 110.9) and 2010 (at 107.9, before the deadline for the sales tax credit).  With the absence of any external fiscal influences this time around, such strength signals incredible fundamental demand.  The Fed is right in their FOMC Minutes:

“Participants remarked on the ongoing recovery in the housing market, pointing variously to rising house prices, growth in residential construction and sales, and the lower inventory of homes for sale.  A number of participants thought is likely that higher home values and low mortgage rates were helping support other sectors of the economy as well, as a couple saw the housing market as having the potential to cause overall growth to be stronger than expected this year…”

3 thoughts on “Housing on a Tear

  1. Homebuilders have demand in excess of their ability to produce homes, caught off guard by the huge pickup in demand. Builders did not expect individual and institutional investors sopping up inventory by the millions. Consequently,new residential construction is expected to pick up 20-30% in 2014.

  2. True, and this upswing in housing favors the larger homebuilders who have access to capital to undertake such massive expansion. Names like Lennar, PulteGroup, and DR Horton who have been rallying for 2 years now.

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