At The Reeves Team we are in constant contact with our clients and with residents of Gilbert and the South East Valley. Because we stay in close contact we know that the sentiment recently among residents is that a recession is near and housing prices are about to dive lower. It does make sense on a certain level, home prices have more than doubled in less than a decade from their low in 2011. Home prices are also higher now than they were at the height of the housing bubble in 2008. We have heard residents and even readers of our blog comment for the last few years that another housing collapse is imminent and that they will wait on the sidelines before finding a better time to jump in. While these are all very good points there are other ways of looking at it and we want clients of The Reeves Team to be the most informed in the valley. So here are a few reasons we may not be seeing a dip in housing prices, but instead we are just getting started on this bull run.
Chronic under-supply of homes
Since the 1950’s there have been on average 1.5 million new homes built per year in America. However, when the market crashed in 2008 it not only scared off home buyers, it also scared off home builders. Since 2008 an average of only 900,000 thousand new homes have been built, this is while the population in America continues to grow. As you can see from the chart we have less than a 6 month supply of homes listed for sale currently and that number is trending downward abruptly. If these trends continue you can expect home prices to go up in the short term and not down.
Interest rates at historic lows
Low interest rates get home buyers motivated and allow them to purchase homes at higher prices and still fit it into their budget. Rates are down over a percentage point from their peak just over a year ago. The average rate is now near 3.5% for the average single family home. These low rates have fueled the housing inventory to fall 2.5% from last September to this September. We have also seen home prices below $200,000 fall 10% compared to a year ago as affordable housing becomes more and more competitive to find. Previously experts were predicting housing inventories to stay flat but now they are revising those estimates and are beginning to forecast steep declines in the future. So with less inventory and with home builders still building at historically low rates, we can expect to see more price rises in the future.
Homebuilder confidence is surging
Home builders have been beaten up over the last decade. Many went out of business after the 2008 housing crisis and those that survived limped along for many years. If you talk to them now though they are singing a different tune. Fueled by shortages and low interest rates builder confidence has surged to its highest level in years according to the National Association of Home Builders. On a scale from 1 to 100 with anything over 50 being positive the metric jumped 3 points in October to 71. Breaking down these numbers a little further sales expectations over the next 6 months rose 6 points to 76 and buyer traffic was also up 4 points to 54. Homebuilder valuations on the stock market are also skyrocketing as wallstreet is beginning to understand we may just at the beginning of this housing bull run.
Millennials to flood the market soon
Finally we get to the millennials. While we have maligned this group for living in their parents basements and not getting jobs, its possible we judged them to harshly to soon. The average age of a first time home buyer is 33. The average age of a millennial right now is 34. Love or hate the millennial generation, their are a lot of them. More so than any other generation in fact, even larger than the baby boomers. They are just not entering their peak earning years and will begin flooding the markets looking for homes.
So what do you think? With all of these signs pointing bullish do you think we are just getting started or do you believe as many others do that we are still in for a housing pullback before things get better? Let us know in the comment section below.
Wow. If we move higher it will take a lot of people by surprise!