Signs of rebuilding in housing?
Every month, the Atlanta Fed polls a number of homebuilders and real estate agents throughout the Southeast. Our latest survey results show that the majority of regional builders and residential brokers continued to report that sales increased on a year-over-year basis in April.
In April, the Atlanta Fed's Center for Real Estate Analytics broadened the scope of the monthly real estate poll to include contacts in this sector who were not participating in our monthly survey. We also reached out to our boards of directors to gauge a wider view of recent developments in residential housing.
The main message from the broader poll was that sales of new and existing houses were indeed improving in the Southeast. In fact, 70 percent of respondents indicated that total March homes sales were slightly up or significantly up versus a year ago. In addition to normal seasonal trends, survey respondents attributed this recent pick-up in buyer activity to attractive pricing and increasing levels of consumer confidence. While respondents cited low interest rates as an influential factor, we interpret the low-rate environment as more of a necessary condition than a standalone driver spurring an increase in the level of sales.
An overall improvement in the credit quality of mortgage applicants was also noted as contributing to the modest improvement in the housing sector. Our Community and Economic Development team did some digging on this topic as well and found that interest in home buying is increasing modestly among first-time home buyers, as evidenced by a growing number of people participating in home buyer education programs. We also heard that sales were increasing at a faster pace in more desirable locations associated with better-rated school districts.
Also in early April, we held our semiannual Real Estate Advisory Council meeting. Many council members felt it would take some time to achieve widespread house price normalization in real estate markets across the United States. (House price normalization, for the purposes of this summary, refers to a return in house price appreciation that generally keeps pace with inflation [i.e., house price appreciation of 2–3 percent per year].) As a side note, those who disagreed felt that house prices would come back sooner and stronger.
Our advisory council members identified several headwinds that we should watch closely. One involves the dampening effect that high levels of student debt, shorter credit histories, and tighter underwriting standards have on first-time home buyers. The second set of headwinds includes the slight but gradual shift in homeownership preferences over time from owning to renting, the importance of location and school districts in home buying decisions, and the sluggish nature of household formation.
The main message from our surveys and from our boards of directors and advisory council members is that housing markets are improving slowly in the aggregate, but these improvements are uneven in terms of scope and size.
By Carl Hudson, a director in the Atlanta Fed's research department, and
a senior research analyst in the Atlanta Fed's research department.
Both Carl and Jessica work in the Atlanta Fed's Center for Real Estate Analytics.
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