2015 -- It Was a Very Good Year . . .
While GDP, CPI and PCE all appear to have ended the year flat, employment continued to grow, reflecting notable job gains in professional and technical services, health care and construction. Employment in construction rose by 46,000 in November with much of the increase occurring in the residential sector. Over the 12-month period ending November, construction employment grew by 259,000, nationally. Coincidentally, housing starts were at an annual rate of 1.173 million units in November reflecting a 16.5% year-over-year jump, and completions were up 9.2% y/y.
Ergo, it was no surprise to see new home sales rebounding in November to an annual rate of 490,000, led by a strong surge in the West, which enjoyed a 20.5% year-over-year increase. While the median sales price for new homes ($305,000) was relatively flat year-over-year, the average price ($374,900) showed a 6.2% y/y jump, suggesting strong demand at the top of the market.
Conversely, Redfin reports that luxury home prices fell in Q315 for the first time since 2012. Prices for the luxury sector, which Redfin defines as the priciest 5.0% of home sales, fell 2.2% y/y compared to a 3.8% increase for the balance of the market. A larger supply of luxury products and global market volatility were cited as catalysts for pushing prices downward. The biggest losers were Scottsdale, AZ and Boca Raton, FL where prices dropped a significant 15% y/y.
Exceptions to this trend included Aspen, which continues to demonstrate strength and stability, and recorded some record breaking pricing at the end of the year. The downtown core enjoyed a sale of nearly $3,000 per square foot for an unfinished penthouse, and high demand resulted in sold volume and average single-family home price rising approximately 15%, year-over-year to reach a whopping $7.1 million. Local real estate practitioners feel the tony resort market will remain sound with steady demand from buyers seeking the 24/7 lifestyle the market area offers.
Other notable 2015 conditions include:
RealtyTrac reports a total of 2,815,704 single-family homes and condominiums sold through October 2015, marking a nine-year high for the number of homes sold in the first ten months of the year. And,
More than one-third of the nation’s major housing markets have now reached new home price peaks and nearly 90% of markets posted an annual increase in October. And,
The rising home prices are finally putting money back into home sellers’ pockets. Homeowners that sold during Q315 saw an average price gain of $40,658 or 17%, the highest average increase since Q307. The largest gains were in California and New York.
Going forward, the picture remains rosy for 2016. Building permits in November were at a seasonally adjusted annual rate of 1,289,900, 11% higher than October and 19.5% above the November 2014 rate of 1,079,000. Based on a recent National Association of Home Builders estimate, new home sales are forecast to jump 26% this year.
Prognosticators are out in full force at the end of each year and 2015 is no exception. Some of the more (seemingly) practical and concurring predictions include:
Freddie Mac’s continued persistence that the Fed will not affect mortgage rates adversely, expecting the 30-year fixed-rate to average below 4.5% for 2016.
Nevertheless, the higher rate is expected to present an affordability challenge at the entry level and reduce refinance volume pushing originations lower in 2016.
With regard to the affordability issue, Freddie expects house price growth to moderate a bit to less than 4.5%, and assumes the strengthening labor market and pent-up demand will carry the year.
CoreLogic predicts that 1.25 million new households will be formed in 2016 due to the improved labor market. While increasing housing demand, much of it is expected to be for rental housing.
CoreLogic essentially agrees with Freddie’s assessment of price appreciation, ball parking its estimate in the 4% to 5% range, and they too believe that mortgage originations will fall – about 10%, instigated by an approximate one-third drop in refinance transactions.
Credit will continue to loosen – slightly. The average FICO score for all closed loans in Q315 was 723, the lowest level in at least four years. Two years ago, the average score for denied applications was 729.
In Closing . . . First-time homebuyers will continue to struggle; it will still be cheaper to buy than to rent while lending conditions will remain relatively stiff, and Millennial families, who will trickle into the market, will be looking for green and smart homes -- in the suburbs. That’s it for now. To keep up ‘til next time, December new construction numbers will be out on 1/20; new home sales data on 1/27, and building permit activity on 1/28. www.census.gov