A slew of housing data were released in recent weeks, and they may be indicating the residential real estate market is in the midst of a recovery.
Existing home sales, which represents the largest part of the residential market, is strong, according to Mitch Roschelle, partner and real estate advisory lead at PricewaterhouseCoopers.
Data from the National Association of Realtors show that existing home sales for October were 5.36 million on a seasonally adjusted annual rate. During the housing boom top, the rate was as high as 7.25 million.
The smaller part of the market, new home sales, is also positive, according to Roschelle. October new home sales, released last week by the U.S. Census Bureau, showed a seasonally adjusted annual rate of 495,000 or nearly 11% stronger than September’s numbers. It also represents a 5% year-over-year growth from last year.
Roschelle points out that October’s new home sales are still below its 6-month average of 498,333, and far below its peak of 1.39 million during the last decade.
The recent numbers for both new and existing homes are positive indicators for the housing market, said Roschelle. “Both are back and both of recovering,” he said.
Home construction isn’t keeping up with housing demand, and that may lead to prices moving a little higher, he added.
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“We have about five months' supply of new [homes and] a little less than five months’ supply of existing [homes]," said Roschelle. “When you don’t have a lot of supply and you do have demand—which we have—prices go up.”
Tempering some of the demand is a shift in demand for housing. While Millennials are seen as staying home longer and forming homes later than previous generations, the real issue may be home ownership rates for every generation, claims Roschelle.
“We’re down about 9 percentage points in the home ownership rate, but that's across every generational cohort,” he said. “The youngest generation, the Millennials, are the ones who get blamed for it. But as a matter of fact, aging Baby Boomers are out of the housing market, too. So this is the new normal. The question is—is it a secular trend or a cyclical trend? I argue it's a little bit of both.”
Nonetheless, Roschelle sees a bright 2016 ahead for the residential market, so long as the Federal Reserve raises interest rates no more than 75 basis points in the coming weeks, if it does so at all.
“The prospects for the housing market are still sunny,” he said.
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