Real estate market looks up in January

March 1st, 2017 8:53am
New housing starts increased in the South in January.

Existing-home sales in January leaped higher than anticipated, reaching the fastest pace in about a decade, according to the National Association of Realtors.

Sales increased 3.3 percent month-over-month to 5.69 million in January, compared to the 5.51 million in December. Compared to a year ago, sales were 3.8 percent higher.

At the same time, housing starts decreased 2.6 percent month-over-month, but showed 10.5 percent gains compared to January 2016, according to the U.S. Census Bureau. Housing starts reached 1,246,000 in January.

January's real estate drivers

Yun attributed the high sales to several recent positive economic indicators.

"Much of the country saw robust sales activity last month as strong hiring and improved consumer confidence at the end of last year appear to have sparked considerable interest in buying a home," he said.

In January, 227,000 nonfarm jobs were added, bringing unemployment to 4.8 percent, just one-tenth of a percentage point higher than in December, according to the Bureau of Labor Statistics. Additionally, average hourly earnings increased three cents to $26. In December, average hourly wages increased six cents.

Consumer confidence has also been showing positive movement over the past few months. In December, the Consumer Confidence Index reached 113.7, the highest it had been since July 2007, according to USA Today.

Though it slipped slightly in January, it picked back up in February, reaching 114.8, according to The Conference Board. Lynn Franco, The Conference Board's director of economic indicators, said in a press release noted that this marks a 15-year high for the index.

"Consumers rated current business and labor market conditions more favorably this month than in January," Franco said. "Expectations improved regarding the short-term outlook for business, and to a lesser degree jobs and income prospects. Overall, consumers expect the economy to continue expanding in the months ahead."

Pending sales down, building permits up

Though housing starts were down relative to December, building permits increased, hinting at growth in housing starts in the near future. Building permits for privately owned housing units totaled 1,285,000, a 4.6 percent increase over December.

Meanwhile, pending sales suffered. The Pending Home Sales Index fell 2.8 percent to 106.4. In December, the index reached a revised 109.5. This measure is based off the average contract level when the index began in 2001. A score of 100 represents what was normal in that year.

Additionally, housing completions fell 5.6 percent in January to 1,047,000. In January 2016, this measure reached 1,056,000.

Though increases in housing starts point to increased construction in the coming months, falling pending sales and completions could indicate obstacles in the near future. NAR's Chief Economist Lawrence Yun noted that low inventory and rising home prices could discourage a large portion of homebuyers.

"Sales got off to a fantastic start in January, but last month's retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meager number of listings in their price range," he said.

Regional focus highlights Southern success

Existing-home sales reached an impressive rate nationwide, with three of the four regions experiencing increases. The South saw an increase of 3.6 percent in existing-home sales. Plus the Pending Home Sales Index increased to 122.5, a 0.4 percent increase over the month before.

Housing starts showed particularly impressive growth in the South, increasing 20 percent month-over-month, reaching a total of 690,000. In addition, 448,000 housing units were currently under construction in the South at the end of January.

Furthermore, the number of housing unit building permits authorized increased 9.9 percent month-over-month, reaching 642,000. These, combined with the 68,000 authorized permits that have not yet begun construction, should bring a fair amount of housing construction to the Southern U.S.

Yun noted that one challenge that prospective homebuyers face is affordability. The median home price for the U.S. in January 2017 was $228,900, a 7.1 percent increase over January 2016. Rising home prices were also observed in the South, having risen 9.2 percent over the past year.

But despite these fast-paced price increases, Southern homes remained less expensive than the typical home in other parts of the country. The median home price in the South was $201,400.

Houston's housing market

Real estate gains were not lost on the Houston area in January. According to the Houston Association of Realtors, single-family home sales increased 1.7 percent year-over-year to 4,080. Additionally, inventory expanded to a 3.5-month supply.

"The Houston real estate market is off to an impressive start for 2017, with the end of the holidays and rising interest rates spurring many on-the-fence buyers to take action in January," Cindy Hamann, HAR chair, said in a statement. "It is especially encouraging to see vitality in the high end of the market, which faltered in response to falling oil prices, but has now registered positive sales for three straight months."

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