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First Quarter Housing Market Trends

This article is more than 7 years old.

The housing market continued to make steady and modest gains in the first quarter of the year. Home prices were broadly rising and thereby helping homeowners accumulate equity. Hard to believe that housing equity from the gloomy years of 2010 to now has essentially doubled from $6 trillion over $12 trillion as the median home price rose from $166,100 to $222,400. Based on the first quarter trends of 6% home price gain, another $1.3 trillion in housing equity could be added to homeowners’ wealth this year. Warren Buffet’s quip about buying when everyone is scared appears apt. The scary period of in-and-around 2010 recorded only 4 million home buyers, but those who took that decision are smiling pretty. Meanwhile, existing-home sales in the first quarter of this year were at 5.3 million annualized pace, which is a 4.7% gain from one year ago. There could be more room to grow given that sales are certainly not the frenzy pace of over 7 million that occurred during the easy subprime lending days and because jobs are consistently being added to the economy provided the mortgage rates remain manageable and do not shoot up.

In another healthy sign, mortgage default rates are sinking. As one of the early indicators to monitor for impending market stress, the number of people late on their mortgage payment by only a month was 2.35% in the latest quarter, the lowest in at least 40 years when this data was first collected.  In addition, the share of homes with new foreclosure proceedings fell to 0.36% of homes with mortgages – the lowest in over a decade. Keep in mind, especially in New Jersey, some of these foreclosure starts are not reflective of recent times but are due to the residual delays by the court system as to when the foreclosures can start. In other words, there are little signs of bad mortgages, which is terrific news about the overall health of the market.

If there is a sense of stress, it is not among homeowners but among renters. Rents have been outpacing income growth for the past four years and counting. In the first quarter, rents rose 3.7%, essentially the double the rate of wage growth. Moreover, the tight credit requirements are still holding back many financially improving renters from converting into owners. The rising student loan debt is holding back first-time buyers, still hovering around 30% of all homebuyers rather than the typical 40%. That is why the homeownership rate still remains at near 50-year lows at 63.6% in the first quarter. Among those aged under-35 the ownership rate fell even more markedly and was 34.2% in the latest quarter. The renter households in the meantime have been ballooning upwards by an additional 9 million in the past decade while homeowner households have been reduced by a million. This trend of more renters and fewer homeowners is occurring at a time of rising home values and housing equity gains. It can be interpreted as a loss of an American Dream and a rising wealth inequality. This trend also partly explains why the narrative of 99 percent-versus-1 percent holds a strong appeal especially among the young in today’s political climate.

Though the housing market continues to strengthen with higher home sales, higher prices, and higher rents for landlords, the broader economy is going nowhere. The first quarter GDP grew at 0.5 percent. Had the residential housing investment spending component of the GDP not registered a solid 14.9% growth rate, the economy could be heading for a recession and along with it the painful job cuts. Fortunately, spending growth for home improvement, more new home construction, rising brokerage commission income, more use of moving trucks and lawn care, and even increased consumer spending for many things arising from homeowner housing wealth accumulation are keeping the economy afloat.

Jobs therefore remain positive. In the first quarter the average month payroll job gains was 225,000 per month. The number of job openings was 5.4 million as of February, which is 1.5 million more month job openings from just two years ago and 3 million more compared to the recessionary condition in 2010. The problem with the jobs data is that the wages remain sluggish and there are more than usual number of part-time workers.

Some states are doing much better than others in regards to jobs. The Western states dominate with Idaho leading with 3.5% one-year job growth rate as of March. In the order of ranking, Oregon, Utah, Arizona, Tennessee, Florida, Georgia, Washington, Colorado, Virginia, California, Nevada, and South Carolina are the top job creating states with at least 2.8% growth rate. Interestingly though, the West region is now experiencing a decline in home sales. Other housing indicators are super solid in the region, such as strong home prices, solid housing equity, and low default rates. What is happening in the West is that demand is weakening from a lack of inventory. This is a complete 180 from the last down cycle a decade ago when the demand was weakening from job cuts. Therefore, if more homes are built in the West, more existing homeowners can trade-up to a newly constructed homes, while the prior homes can then be released onto the market and thereby give some chance of ownership for the younger first-time buyers who are finding jobs. Just focusing on single-family housing starts (since nearly all multifamily housing starts are for apartments and not condominiums), homebuilders in the West have boosted new home construction by 17% in the first quarter compared to the same period a year ago. Even bigger increases are desirable, but at least the trend is for steady improvements in supply. All in all, it’s been a good quarter for the housing sector, and especially for the homeowners.