Housing's Got a Spring in Its Step This Year | John Burns Real Estate Consulting

Housing’s Got a Spring in Its Step This Year


Three months into 2017, it is clear to us that home builders have started the year off on a much better foot than 2016. Based on our monthly survey of over 300 home builders across the country, new home sales have increased roughly 14% YOY through February. March is looking just as strong, based on our channel check survey of 82 builders last week. Across almost all markets, housing demand has accelerated YOY, with top markets such as Dallas, Nashville, Seattle, and Portland Hot. This month we also upgraded several California markets from Warm to Hot (San Jose, Riverside-San Bernardino, and San Diego).

Housing Demand Resilient despite Rising Rates

Despite the fear surrounding rising mortgage rates, builders have seen no drop in demand other than a slight increase in cancellation rates (mainly Texas, and partly due to elongated construction cycles). On the contrary, many builders have noted a heightened sense of urgency among fence-sitters now that rates have finally started to creep higher. Today’s economic backdrop is much healthier compared to the last time rates ticked up in 2013. Back then, the move from 3.5% to 4.5% was due almost entirely to the Federal Reserve pulling back on its mortgage-backed securities purchase program (dubbed the taper tantrum). This time around, however, rates have risen from 3.5% to 4.1%, largely due to expectations for accelerating economic growth—what we deem to be an organically driven justification for higher rates. As shown in the graphic below, comparing the backdrop for both rate increase periods helps shed additional light on why housing demand remains more resilient this time around:

 

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Each housing market presents its own challenges and opportunities. However, we are confident in our conclusion that new home demand has accelerated compared to spring last year.

 

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Rick Palacios Jr If you have any questions, please contact Rick Palacios Jr., Director of Research at (949) 870-1244 or by email.

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