Capitol Report: Housing has ‘turned a corner’ as sales fastest in eight years
WASHINGTON (MarketWatch) — The housing market has “turned a corner,” an economist said Tuesday after reports this week showed that total home sales are running at the fastest pace in eight years.
New-homes sales so far in 2015 are outpacing deals made a year ago, with recent purchases reaching the fastest rate in more than seven years.
“What we are left with is a convincing accumulation of evidence that new-home sales have broken out to a higher level,” said Stephen Stanley, chief economist at Amherst Pierpont Securities. “Builders’ efforts are barely keeping up with burgeoning demand for new homes.”
Meanwhile, sales of used homes just hit a 5.5-year high. Combining the two types of home sales shows that May’s total was the largest monthly tally since June 2007.
“The latest data indicate that housing demand is slowly picking up steam,” said Gregory Daco, head of U.S. macroeconomics at Oxford Economics.
Read more: Housing continues to boom as existing-home sales hit 5.5-year high
The housing market has been underperforming for years. In the first quarter, fixed residential investment made up about 3.1% of real U.S. gross domestic product, below an average of more than 5% over the past five decades.
But key factors are improving. Young families and other first-time buyers are making more home purchases. The jobs environment is steadying. And with the beginnings of a pick up for wage growth, there’s rising demand and ability among borrowers to take out a mortgage.
Read more: First-timers buy more homes as hiring picks up
“Housing has turned a corner,” Stanley said. “The corner might have been turned last year if not for the awful winter weather that prevented home builders from getting foundations dug until well into the spring in half of the country.”
Yet, even as parts of the housing market strengthen, there are still pools of deeply distressed borrowers in the U.S. who are having trouble affording their monthly mortgage payments. Some of these borrowers owe more on a loan than their home is worth. Meanwhile, others don’t have enough equity to sell their property without taking a loss.
Rising home prices should help some struggling borrowers and firm their financial footing. The Federal Housing Finance Agency reported that seasonally adjusted home prices rose 0.3% in April, and were up 5.3% from a year earlier. The regulator reports on prices for homes with mortgages backed by federally controlled mortgage-finance giants Fannie Mae and Freddie Mac.