New-Home Market Expected to Strengthen

New-home sales have been edging up since 2012, and the builder’s trade group predicts that sales will to continue to rise for the rest of the year and into 2016.

“Strong job gains are bolstering housing demand,” notes economists at the National Association of Home Builders’ Eye on Housing blog. “Rising builder confidence, housing starts, and low interest rates all point to continuing recovery in the housing sector, even as industry headwinds, including access to lots and labor, will produce bumps along the road.”

Don’t Be Alarmed: Home Ownership Dips Again

One bump came in the most recent Commerce Department report that showed sales of newly built single-family homes dropped 6.8 percent in June to a seven-month low. Builders believe a pick up is on the way.

For one, the National Association of REALTORS®’ Pending Home Sales Index recently showed contracts for existing-homes to be up 8.2 percent in June year-over-year. Builders believe that gains in existing home sales are key in helping the new-home market grow with move-up buyers as well as provide a boost to the remodeling market, NAHB notes.

“Home purchase activity will need to grow faster if ongoing declines in the home ownership rate are to reverse,” NAHB notes on its blog.

The recent demand for rental properties by would-be first-time home buyers has caused the home ownership rate to plunge to a 35-year low at 63.4 percent.

However, household formations has been on the rise. In the second quarter, total households were at slightly under 117.3 million, a year-over-year increase of 1.6 million.

“Growth in household formations should improve demand for both owner and renter housing,” NAHB notes.

Also, a strengthening economy during the second half of this year also should help the new-home market see a gain in sales, NAHB notes.

Source: “Eye on the Economy: Pace of Home Sales Weakens in June,” National Association of Home Builders’ Eye on Housing (Aug. 5, 2015)

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