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Home | Daily Dose | Housing Report Bucks Conventional Wisdom
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Housing Report Bucks Conventional Wisdom

house-maze

Is the housing market projected to grow in 2015

 

Conventional wisdom seems to suggest that recent housing data points to reasons for analysts to worry about the direction of the economy. A new report makes the case that the picture is much brighter then their consensus would lead one to think.

“It’s scary to be a contrarian, particularly if you’re contrarian and bullish. In retrospect, this position is the most fun— if you’re right,” said Michael Simonsen, co-founder and CEO of Altos Research.

Recently, his group published its 2015 Housing Report. Based on real-time observations of housing supply and demand, among other conclusions, the report is forecasting a 7 percent home price increase for 2015.

In terms of home prices, the U.S. real estate market hit the absolute bottom on January 4, 2011, according to the report. Since then, home prices are 39 percent higher.

“Yet every day we see media headlines declaring weakness and disappointment. As recently as June 2015, housing apparently remains a chief concern for Fed chief Janet Yellen, who uses phrases like much slower pace than expected and slowdown,” Simonsen said.

These attitudes reflect a myopic view of actual market conditions and conflate concerns over the mortgage industry, the otherwise-constrained new construction market, and, more broadly, the long-term financial stability of the U.S. consumer with specific current housing market supply and demand dynamics, according to Simonsen.

While these are valid long-run concerns, the variables impacting home prices have proven to be driven by low available supply and growing household formation.

“The real-time data paints a much more robust environment than the headlines would indicate. Demand remains high; transactions happen very quickly,” he said. “Home prices are up another 9 percent year over year as of July 2014. We’ve had a strong run and the American consumer is anxious to again buy real estate.”

The report goes into depth about a number of leading indicator metrics. It projects that that the U.S. housing market will end the year up about 8 percent to 9 percent from the end of 2013. That boost alone will help 2015 proceed to a reasonable appreciation rate, according to Simonsen.

“Demand for mortgages is down, demand for housing must be down, and that’s bad. Right? Apparently not. Demand for mortgages is down. But the data keep telling us that demand for housing is not subsiding (as of the first week of March, 2014),” he said.

According to Simonsen, a number of trends point to a strong U.S. housing market in 2015. To begin with, all cash deals are high and climbing. For example, 47 percent of home purchases were all cash in December 2013, up from 27 percent a year ago. In addition, contrary to most casual observers’ opinions, the big institutions are not driving the cash purchases. Buyers are cash-rich consumers and small-time investors buying a second or third property.

Furthermore, even if mortgage demand is weak, demand for housing is still very high. Housing demand, as measured by some of Altos Research’s proprietary metrics, is only a little softer than last year at this time.

Finally, another positive development is that interest rates are actually falling. After the spike a year ago, rates have drifted lower again. This implies that the bull market for U.S. real estate has room to run when leverage increases again.

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About Author: Derek Templeton

Derek Templeton
Derek Templeton is an attorney based in Dallas, Texas. He practices in the areas of real estate, financial services, and general corporate transactional law. His experience includes time as an Attorney Adviser for the U.S. Small Business Administration and as General Counsel for a nonprofit organization in Dallas. A self-avowed "policy junkie," he has a keen interest in the effect that evolving federal policy has on the mortgage, default servicing, and greater housing industries.

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