Economist Predicts Potential Rally in Housing Market as New Home Sales Surge

Strong data signals bottoming out and a potential rebound in the housing market

Jul 9, 2023 - 10:39
Jul 9, 2023 - 10:40
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Economist Predicts Potential Rally in Housing Market as New Home Sales Surge
Economist Predicts Potential Rally in Housing Market as New Home Sales Surge

According to economist Brad Dillman, Chief Economist at Cortland, the US housing market is showing signs of a potential rally after experiencing a slowdown in recent months. Dillman highlights the surge in new home sales, increased new construction activity, and a rebound in home prices as key indicators of market recovery.

The limited inventory in the resale market has driven buyers towards new construction homes, resulting in a significant increase in sales. The latest data from the government and Census Bureau supports this positive outlook, showcasing growth in housing starts and permits. Although mortgage rates have risen, they remain relatively stable, and homebuilders are optimistic about demand.

However, the market still faces challenges due to limited inventory and high home prices. Desirable homes are receiving multiple offers and selling above asking price, emphasizing the importance of fair pricing and effective marketing for sellers.

The Housing Market Bottoming Out:

Brad Dillman, Chief Economist at Cortland, believes that the US housing market has reached a bottom after a period of slowdown. Dillman cites recent data as evidence of a potential rally in the market.

New Construction Boosts Recovery:

One of the major contributors to the housing market's rebound is the new construction sector. Limited inventory in the resale market has driven buyers towards new homes, resulting in a consecutive increase in sales for the past three months. In May, sales of newly built single-family homes rose by 12.2% compared to April and 20% compared to the previous year, according to government data.

Strong Housing Starts and Permits:

Data from the Census Bureau reveals a significant surge in new construction activity. Housing starts for both single and multi-family units increased by 21.7% in May compared to the previous month. The annualized rate reached 1.631 million units, surpassing economists' estimates. Building permits also jumped 5.2% in May, indicating a positive outlook for future construction projects.

Optimistic Outlook for Homebuilders:

Homebuilders are confident about the market's recovery. KB Home President and CEO Jeffrey T. Mezger stated that buyers are adjusting to higher mortgage rates, and the stability in rates is seen as a positive factor. Despite rising mortgage rates, the rate-conscious homeowners are choosing to stay in their current homes rather than list them, contributing to the shortage of inventory.

Challenges for Homebuyers:

The limited inventory of homes available for sale has led to higher prices. The National Association of Realtors reported that the number of homes listed was at a record low in May. Consequently, homes are selling close to last year's record highs, with a median sale price of $383,000. However, the market is not as fast-paced as it was 18 months ago, and competition varies depending on the property's desirability and pricing strategy.

The Path to Recovery:

While the housing market shows signs of recovery, challenges persist. Limited inventory, high home prices, and mortgage rate fluctuations create a complex environment for buyers and sellers. Fair pricing, effective marketing, and attention to property presentation can enhance the chances of success in this evolving market.

In conclusion, the US housing market is witnessing positive signs of a potential rally. Increased new home sales, strong new construction activity, and rising home prices indicate a bottoming out and a possible rebound. However, challenges such as limited inventory and high prices remain, necessitating strategic approaches for both buyers and sellers in this evolving market.

Also Read: Financing Options for First-Time Homebuyers in the United States

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