Why Housing Will Spring Ahead

Conditions are right for the housing market to finally shift into higher gear

By Justin Lahart

Last year, a combined 5.1 million new and used homes were sold in the U.S.

Last year, a combined 5.1 million new and used homes were sold in the U.S. Photo: Associated Press
 

Spring is coming to the housing market. Probably.

It is over a decade since the housing bust began, nearly seven years since the recession ended, and the U.S. housing market isn’t close to what historically would be considered normal. Last year, a combined 5.1 million new and used homes were sold in the U.S—not quite as many as in 1998, when the working-age population was one-fifth lower than it is now.

The conditions for improvement are there. The job market has continued to strengthen—there were 2.8 million more people working last month than in the same month a year ago, according to the Labor Department—bolstering incomes.


That is part of why more people are finally striking out, or striking out on their own again. Goldman Sachs estimates the number of newly formed households eclipsed 1 million last year, marking the first time that has happened since 2006. What’s more, the firm estimates 1.2 million new households will be added in each of the next four years. Improved finances, low rates and an increased willingness among banks may entice more households currently renting to buy, and more homeowners to trade up. Indeed, there are signs of health.

The most recent monthly readings on new home sales and pending sales of existing homes, were encouraging. There has been an increase in the number of people applying for a mortgage. The Mortgage Bankers Association last week said its index of mortgage applications for purchasing a home was up 24% from a year earlier.

The one wrinkle in the housing-revival story is that warm weather over the winter may have made things look better than they actually are. Because housing data are adjusted to account for the big seasonal swings the sector is subject to—typically around 40% of annual homes sales are inked in the four-month period that starts in March—if only a little activity gets drawn into the dead winter months, it can have a pronounced effect.

That said, last week’s Beige Book—the collection of anecdotal reports on the economy from Federal Reserve Banks—suggested that housing activity is gaining traction in many parts of the country. The Federal Reserve Bank of Cleveland, for example, noted that home sales had increased in the region, with builders and real-estate agents attributing the pickup to “low interest rates and continued pent-up demand.“

And commenting on the increase in mortgage applications that J.P. Morgan Chase has experienced, finance chief Marianne Lake last Wednesday said: “We are seeing spring activity continuing to be robust.”

All of which is positive for those associated with housing, from banks to builders to brokers and retailers.

Full-fledged recovery for housing is still a while away. But after a long time of near dormancy, it looks like it is starting to stir.
 

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