We haven’t looked at Leading Indicators for real estate since spring and it’s getting close to the end of 2013. Let’s see where things are and where they may be headed in 2014. I’m using more graphic representations than usual thanks to The US Economic Outlook Report by Beacon Economics, dated October 2013. I think it helps to see charts.
Case-Shiller Home Price Indices
Always start with the CaseShiller Index.
“The 10-City and 20-City posted a 12.8% annual growth rate” says David M. Blitzer, Chairman of the Index Committee and S&P Dow Jones Indics. “ Both Composites showed their highest annual increases since February 2006.”
There are some that are concerned that this growth is too much too fast. The issue is supply and demand. If we could see an increase in inventory, prices would slow down.
Housing Supply HH
As stated above, supply and demand drive price. The standard in the industry for a balanced market (either a buyers or a sellers market) is 6 months of inventory. You can see, except for the Northeast, every region has an inventory level below six months.
For years we have heard that there would be a flood of REO’s and foreclosures which would create another bubble. We haven’t seen that, quite the opposite. For entry level home buyers it has been very diffcult to get in the game. Investors purchased a lot of the distressed properties and are now starting to put them back on the market slowly.
Vacancy Rates /Homeowership
This data was released November 5th. Rental vacancy rates have seen a steady decrease over the last seven years (with a slight bump up in the third Q of 2013). This is a positive sign for investors who own or are thinking about purchasing rental housing.
The data on home ownership remains very steady with a rate of 65.3 percent, only slightly lower than third Q of 2012 of 65.5 percent.
Housing Permits, Starts and New Home Sales
We often look at these two indicators together; however the correlation between the two is not exact. The US Census Bureau includes owner built units and units built for rent in the Housing Starts number and they are not (for obvious reasons) in the New Home Sales Report.
As of the writing of this article no new data was available from the US Census Bureau. Because of the 16 day government shutdown, the bureau pushed back the release of data until December 4th.
We have been reading for years about the affordability of housing but to see it graphically represented is dramatic. Imagine if there were a great supply of homes for sale and prices were driven down a little what this might look like.
The real issue is that we know some of this is artificial because of the Fed continuing to keep interest rates so low. It will be interesting to see what happens once tapering starts.
National Association of Realtors (NAR) forecast for 2014
On November 8th at the NAR annual conference in San Francisco, Lawrence Yun, Chief economist for NAR outlined his forecast for 2014. Mr. Yun predicted that existing home sales will remain flat at roughly 5.1 million units, prices will rise by 6 percent and interest rates (which are currently at 4.16 percent) will rise to close to 5.5 percent by the end of 2014.
Mr. Yun does expect that sales of new homes will see an increase by 18.5 percent. He is also projecting a 25 percent increase in new-home construction starts.
“Housing starts really need to ramp up going into next year,” Mr. Yun said. “Otherwise, home prices will continue to go up…The only way to contain prices is that we need more inventory.”
Diana D. Hill