Housing Market Outlook – Interpreting the Latest Data

As summer heats up, where are home sales heading? According to Reuters, economists had predicted sales of existing homes to dip slightly, so the modest 2.7 percent gain represented a surprise. Combined with the healthy 15 percent jump in new mortgage applications in May over the same period last year, the market appears to be showing strength. Yet, some pessimism persists, with a few voices even raising the possibility of another housing bubble.

Navigating through the conflicting perspectives requires a closer look at several factors. One reason for optimism lies in simple supply and demand. Housing inventories continue to shrink – May marked the 24th straight month of year-over-year declines. That’s contributed to gains in housing prices and increased demand. In May, the median home price rose to a record $252,800. Lennar Corporation reported its best quarter in 10 years in terms of new home orders. Interest rates have been inching up this year, with the Fed hiking rates another quarter point June 14, citing its belief that the overall economy continues to gain strength. Unemployment has dropped, which is also generally good news for the housing market.

Two factors to keep an eye on in terms of the future housing outlook will be the effect of the recent and potential future interest rate hikes on mortgage rates; and the prospects for Congress passing legislation to repeal or unwind elements of Dodd-Frank, which could spur additional residential mortgage lending and further improve the housing market.

Janus AMC will continue to keep a close watch on these factors.

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