Will 2016 Be the Housing Market’s Best Summer Ever?

September 12, 2016 | By

Summer is normally a popular time to buy or sell a home. But this season’s strong housing and economic data may make it the “best summer for the housing market in a decade,” declares Jonathan Smoke, chief economist at Realtor.com, in a piece he penned for CNBC.com.

Smoke points to low mortgage interest rates and an unemployment rate of 4.9 percent in July as factors driving home sales. The unemployment rate remained at 4.9 percent in August, the U.S. Labor Department reported on September 2.

Smoke says the employment report affirmed healthy economic fundamentals that support demand for housing. He also points to consumer confidence as a factor that favors those who want to buy a home.

Although additional data points for August are yet to come, Smoke says he believes the demand for real estate remained robust.

Sunny Days Ahead

The summer school break provided Sarah Parada and her family the opportunity to move. Sarah Parada’s family is one of those contributing to positive summer home sales data. After renting a house in the suburbs of Washington, D.C., her family closed on a new home in late August.

It had been a priority to stay in the same school district where her two children are students. But because properties in her area move fast, she realized they would have to move fast to close a deal too.

When they found a home they liked, they submitted an offer the next day. By day two, they had the home under contract. Within a month they were moved in. “The market around here is so expensive and competitive that if you like something, and it’s a decent house, you need to jump on it,” says Parada.

“And if we didn’t find anything we liked, we probably would have stayed in the same rental for another year,” she says.

Reality Check

While this summer’s real estate market may be sizzling, the total number of transactions continues to be held back by two key factors: limited supply and tight credit, Smoke says.

“Those factors are most significant in hot-but-high-cost markets like San Francisco, where we are seeing some cooling in demand. But even with some cooling, markets like San Francisco remain very hot relative to the rest of the U.S.,” Smoke says.

Affordable markets, especially in the Midwest and Southeast, are likely to see sales remain strong at least through August as frustrated buyers unable to find a home already this summer remain in the market while mortgage rates remain near all-time lows, he says.

Doug Duncan, chief economist with Fannie Mae, says in terms of level of home sales and construction, “There’s no doubt that if you look at the depth of the crisis, we’ve been on an uptrend.”

New residential sales reached an eight-year high in June, increasing 3.5 percent to a seasonally adjusted rate of 592,000, according to the Commerce Department.

On August 16, the Commerce Department reported housing starts increased 2.1 percent in July to a seasonally adjusted rate of 1.2 million units, the highest level since February.

Still, the limited supply of homes for sale is a major challenge, Duncan says. The supply of unsold inventory was 4.6 months in June, according to the National Association of Realtors®. A “normal” unsold inventory supply is typically between six and seven months, he says.

“We’re not back to normal by any means,” Duncan says about the housing market. “The limited supply of starter homes means house prices are appreciating well above long-term inflation-adjusted pace and thus a headwind for first-time buyers.”

 

Source: This will be the best summer for the housing market in a decade,” published on CNBC.com on July 8, 2016.

 

Estimates, forecasts, and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current, or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

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