The housing market has indeed awakened from its summer slumber.
Existing-home sales posted a 2 percent monthly gain in October and are now 5.9 percent higher than a year ago. Even more impressive? At a 5.60 million annualized sales pace, October was the strongest month for existing sales since February 2007 (5.79 million).
Lawrence Yun, NAR chief economist, attributed October’s sales increase to the release of some of the unrealized pent-up demand that held back buyers over the summer due to tight supply. “Buyers are having more success lately despite low inventory and prices that continue to swiftly rise above incomes.”
Given this fall’s sales revival, one has to wonder if there’s room for more growth. Home prices continue to swiftly rise (up 6.0 percent in October) and inventory remains suppressed in most markets. Another obstacle in the path is mortgage rates, which have ascended to over 4 percent after being in the 3.50 percent range for most of the past year.
“As a result of the anticipated economic stimulus in early 2017, mortgage rates post-election have now surged to around 4 percent as investors expect a strengthening economy and higher inflation,” said Yun. “In the short-term, some prospective buyers may rush to lock in their rate and buy now, while others – especially those in higher-priced markets – may be forced to delay as a larger monthly payment outstretches their budget.”
The economy continues to add jobs and the low unemployment rate is pushing wages higher. Will that and an uptick in homebuilding activity be enough to offset the affordability hit from higher rates?