Why the Housing Market Is Getting Stronger

New-home sales and quarterly results from Toll Brothers this week should bolster the housing market’s solid fundamentals

By Steven Russolillo 

Spring has sprung for the housing market. Even the Federal Reserve isn’t likely to spoil the fun.

Steady job growth, rising wages and low interest rates have helped prop up housing demand. Friday’s positive report on U.S. existing-home sales underscored this. And even with the specter of another Fed rate increase looming, perhaps as soon as next month, housing’s foundation isn’t likely to be shaken.

There are a few worries after three consecutive months of declines in new-home sales, but government data and quarterly results from luxury home builder Toll Brothers Inc., TOL 3.07 % out Tuesday, should ease concerns. Economists polled by The Wall Street Journal estimate sales of newly built homes rose 2.3% in April from a month earlier.

Meanwhile, home builders are feeling pretty optimistic about current conditions, which should bode well for Toll. A gauge of home-builder sentiment, released last week, held firmly in positive territory, according to the National Association of Home Builders. Perhaps more important, expectations for sales in the next six months jumped to the highest level of the year.

Rates also remain favorable. The average 30-year fixed-rate mortgage was 3.61% in April, the lowest monthly average since May 2013, according to Freddie Mac. Of course, rates didn’t stay low for long back then as the taper tantrum roiled the market. This time, an actual Fed rate increase likely wouldn’t provide as much shock value to markets as the mere hint of tapering bond purchases did then.

And a factor that has held housing back—affordability—might give buyers a breather. On the surface, rising home values have made it more difficult to buy a home, particularly for first-time home buyers. But a measure of housing affordability, compiled by the National Association of Realtors, tells a different story.

The Realtors’ group, assuming a 20% down payment, measures a typical mortgage payment for the median priced home and compares it with median household incomes. By this measure, housing has actually been getting more affordable since the summer, a reflection of rising wages and low interest rates.

It isn’t last call yet for this house party.

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