The housing market has been through a great deal in recent years, so much so that you have to admire its resilience. It takes its share of beatings, but somehow, it seems to keep coming back.
Encouraging signs from the Census Bureau's latest New Residential Sales report may indicate the beginning of yet another comeback for housing. Low mortgage rates and an improving job market could help housing take the next steps forward.
Housing Sales Turn the Corner
The Census Bureau reported that new homes were sold at an annual pace of 433,000 in April. This is an improvement over the March figure of 407,000, and represents a bit of a turnaround after the pace of new home sales had slowed in each of the prior two months. These figures are seasonally adjusted, so April's improvement was more than just the usual springtime recovery in house hunting.
With the pace of new home sales picking up, the inventory of new homes on the market shrank from 5.6 to 5.3 months' worth, which should help keep supply and demand more in balance and thus support pricing.
The resurgence in new home sales was especially strong in the Midwest, where the pace of sales was up by 47.4 percent for the month, and 35.5 percent year-over-year. The Northeast continues to struggle: it already had the slowest pace of new home sales of any region, and that pace dropped by 26.7 percent in April.
The struggles in the Northeast indicate that these are still hardly boom times for the housing market. In fact the national pace of home sales is down 4.2 percent from a year earlier, though it has improved by 22.3 percent over the past two years. Progress is being made, but in an inconsistent manner.
All in all, April's new home sales are a step in the right direction, but fall short of representing a robust recovery. The housing market will have to string together a few more months of improvement before this looks like a strong rally.
What Could Help the Rally Continue?
One month's results do not necessarily signal a trend, and new home sales figures are pretty erratic from month to month. So what reason is there to be encouraged by the latest Census report?
The context that puts this upturn in an especially positive light is that two recent economic developments should further support demand for housing:
- Low mortgage rates. As of May 22, 30-year fixed mortgage rates had fallen to 4.14 percent, according to Freddie Mac. While not as low as the bottom mortgage rates reached in the spring of last year, 4.14 percent represents the lowest level for 30-year fixed mortgage rates since last October. It represents a drop of 34 basis points since the end of 2013, and a drop of 44 basis points since rates peaked last August. Low mortgage rates not only fuel new purchase demand, but they can also create refinancing opportunities that put more consumer spending into the economy.
- Job growth. Speaking of putting money into the economy, getting people back to work is one of the surest ways of making that happen. After all but collapsing at the end of last year, job creation seems to be hitting its stride again. The Bureau of Labor Statistics reported that 288,000 new jobs were created in April. This was the third straight month in which job creation exceeded 200,000, which represents a sustained improvement over the average of 190,000 new jobs over the past 12 months. More and healthier paychecks represent increased demand for housing in the long run.
It is too early to say whether April's upturn will turn into and extended rally - after all, the course of the housing market follows a lot of twists and turns. However, current home mortgage rates and the improvement in job growth may well give the housing market the support needed to keep new home sales moving upward.