U.S Real Estate Sales had a Winning Start for the First Half of 2016 but can it Last?
By: Anthony Ramamsumiran •
Can it last?
Looking back at the end of 2015 the expectations for real estate sales in 2016 was full of hope and glee. So far the first half of the year, 2016 has more than delivered what was expected. Let us take a quick look at sales figures, in comparison to the first half of 2015 house sales are up 5% and in June 2016 we saw a record 5% increase in median house price.
Another positive from this is the appreciation in property prices which has restored lost equity for many home owners. A higher property value is encouraging for home owners because investment in home improvements also increased and in some cases, selling existing properties and investing in different properties to suit current needs.
The key question is how long will this last? With economic events from the past couple of months we can’t expect this growth spurt to keep going through the third and fourth quarter of 2016.
With developers focusing on affordable housing, the younger generation have finally been able to start investing in property, the baby boomer generation is also making decisions involving retirement which increases the supply and helps power sales.
In general nearly all ages have been tempted to purchase when you take high rental costs and close to record low mortgage rates. Mortgage rates have been favorable due global economic weakness driving investors away from most markets and towards U.S bonds, as demand for the bonds increase this drives the price up which in-turn forces the cost of borrowing to go down.
We have to remember that with all this demand (which is good), it can only grow to a fixed amount due to current supply issues. There is currently a shortage in the number of homes for sale. If we look at the pace for the first two quarters of 2016, the supply is set to be exhausted by the beginning of December 2016.
One thing to keep in mind is that sales have grown because inventory has been sold quicker. The lowest national median days a property has been on the market is 65 days, that’s quick! The number of days cannot increase because of the rapidly exhausting supply. In a realistic sense the sales will flatten or potentially decline until there is a supply increase in existing and newly built homes.
Mortgage rates will more than likely increase later this year as a result from the figures from employment reports from August, Fed meetings on September 20-21 and there is also an upcoming election which will affect mortgage rates.
So, the first six months of 2016 was strong to the point of low inventory. Mortgage rates can rise later this year, from economic uncertainty, future labor reports and a pending election, we could experience a slow end to the year. This can still make 2016 the best year for real estate sales in the past decade.
A stronger economy, more jobs, lower unemployment teamed with higher wages will strongly power demand. Higher rates will also likely help loosen credit. Those positive conditions coupled with demand from millennials and supply from boomers will keep the U.S. housing market healthy and strong for at least two more years.
U.S Real Estate Sales 2016, Performance figures for real estate, National Association of Realtors, Q1 Q2 real estate sales