Need Proof of Housing’s Strong Recovery? Take a Drive.
The past few years have witnessed the housing market limping toward recovery, struggling its way back from the initial collapse while battling the effects of a weak economy. Translation: the continuation of rigid mortgage loan terms and conditions that include requiring buyers to cough up a down payment between 10 and 20 percent. While more prudent banking practices are welcome and necessary, one only needs to consider how difficult it is today for many people to save such a large amount in order to question the exceedingly strict nature of these practices—especially when incomes have remained stubbornly flat for far too long.
On the other hand there are several indications that reflect true market growth. But first, if you really want to get a sense of what’s happening in the market, your best bet may be to take a drive. Which is precisely what I did one recent summer afternoon.
Granted, the purpose of my drive was not to gauge the health of the housing market, yet I couldn’t help but notice new construction popping up on roads less traveled. Here, on the fringes of Northeast Ohio’s farmland and in neighborhoods that were built just five or 10 years ago—including some still waiting for buyers to step up—homes were well underway. Exactly the kind of concrete evidence that those in the building industry have been waiting for.
Given all of this activity, it’s not surprising to hear that local and regional builders in many parts of the country are facing a shortage of lots. This may be tempering growth but, fortunately, not sentiment. In fact, U.S. home builder confidence hit its highest level in nearly a decade in July, evidenced by a National Home Builders/Wells Fargo Housing Market Index (HMI) reading of 60. June’s reading was revised to 60, up from 59, underscoring the stability we’ve seen regarding sentiment. And, both readings are a strong improvement over last July when the index stood at 53. (The critical line between positive and negative sentiment is 50.)
Other factors are also emerging in support of the market’s consistent growth. Low interest rates and an upward trend, generally speaking, in consumer confidence mean that potential homebuyers who have been waiting on the sidelines for signs of stability, in both the market and their lives, might finally believe their time has come.
Also, the unsteadiness of household formation—another valid concern—may finally be righting itself, too. It’s quite possible that we’re poised to witness a huge new wave of people getting married, having kids and pursuing home ownership. Yes, Millennials do want to own a home of their own. A recent Trulia survey finds that 30 percent of 25-to-30-year olds are currently saving for a down payment and hope to purchase in the next two years.
At hfa, we’re seeing much greater optimism among our home and building products clients regarding industry growth. For nearly a decade, growth in building materials focused heavily on stealing market share from competitors or pioneering new markets. Today, we’re finally at a place where growth will be driven by a much stronger overall market.
Still not convinced? Then my advice to you is to take a drive. I think you’ll see things differently.