Can housing sustain its ‘Trump bump’?
Wednesday, March 29, 2017
Nearly every major indicator of housing market performance trended upward in February, capping one of the best beginning-of-the-year starts since the Great Recession. The only reported weakness was in sales of existing homes — and that, according to analysts, was due a lack of adequate supply, not lack of demand.
As we near the end of the first quarter, the question looming over the industry is whether this trend is a harbinger of better things to come as we approach the spring sales season or a temporary bounce due to early expectations that President Donald Trump's new administration will speed up the pace of economic recovery and increase prosperity for consumers.
Along with notable upticks in most indicators in February, some also reached post-recession highs.
Sales of new homes increased 6.1 percent over January (which had risen 3.7 percent from December's 10 percent drop) and were up 12.8 percent from a year ago, according to the U.S. Census Bureau and Department of Housing and Urban Development (HUD). The agencies also reported that single-family housing starts (in number of units) rose 6.5 percent to their highest level since late 2007.
Although requests for building permits fell overall by 6.2 percent, single-family requests were up 3.1 percent. Dodge Data & Analytics also found single-family construction (in dollar volume) jumped 5 percent.
All this activity gave a big boost to builder confidence, which, as measured by the National Home Builder Association's Housing Market Index, gained 6 points this month, reaching a 12-year high.
After a rebound in January, existing homes sales in February declined by 3.7 percent — including a 3 percent drop in single-family home sales — but were still up 5.4 percent from the same time last year, said the National Association of Realtors. NAR Chief Economist Lawrence Yun attributed the dip to "too few properties for sale and weakening affordability conditions" that stifled would-be buyers in many areas of the country.
Nonetheless, First American Financial Corporation's first-quarter 2017 real estate sentiment index finds real estate professionals nationwide are generally optimistic that business this spring buying season will be better than last year's.
It's easy to see that this flurry of activity stemmed not from changes in the housing market, but from consumers' expectations that the economy — and with it, their personal wealth — would improve significantly under the new administration's pro-business policies. The stock market's prolonged post-election "Trump bump" generated an accompanying surge in consumer confidence.
The Conference Board announced that its Consumer Confidence Index, which increased from 110 to 114 between November and January, hit 116.1 in February and "improved sharply in March" to 125.6.
"Consumers' assessment of current business and labor market conditions improved considerably," remarked Lynn Franco, Director of Economic Indicators at The Conference Board. "Consumers also expressed much greater optimism regarding the short-term outlook for business, jobs and personal income prospects."
Fannie Mae stated its Home Purchase Sentiment Index for February reached a new all-time high, increasing by 5.6 percentage points to 88.3, noting prospective home buyers are more confident about not losing their jobs and seeing real income gains.
Similarly, the NAR's first quarter Home Opportunities and Market Experience (HOME) survey report relates that "the share of households believing the economy is improving soared to its highest share in the survey's five-quarter history (62 percent), and is up from 54 percent last quarter and 48 percent in March 2016." Nearly 3 in 4 prospective buyers (72 percent) believe now is a good time to buy a home, the report finds, which is comparable to the Fannie Mae rating.
As encouraging as these data are, the housing industry faces a number of challenges to sustaining buyer enthusiasm. Analysts are speculating whether the "Trump bump" is now over. The markets have fallen this week on investors' worries that the new administration may not be able to make good on its promises.
Subsequently, consumer sentiment declined as well to its lowest level since the election in Gallup's weekly U.S. Economic Confidence Index. Further negative economic news could put consumers on their guard and prompt them to reconsider making major expenditures at this time.
The rate of new housing completions slipped 6.5 percent last month, adding further concern as to whether home builders can keep pace with demand, especially if existing home inventories remain in short supply. Meanwhile, home prices and mortgage rates are rising, and there is a scarcity of affordable housing, putting an added squeeze on potential buyers who are already struggling to qualify for a home purchase.
Homebuilders, too, are grappling with labor and lot shortages and increasing material costs. For all these reasons, industry experts will be closely watching the indicators for March to see if the market can maintain its momentum going into its busiest time of the year.
- Interior design is not about flowers
- Emerging green building material technologies to watch
- Window film improves building system performance
- Watch out for these 3 common electrical safety hazards
- 3-D printing is revolutionizing construction and design fields
- Indoor lighting and its effect on emotions
- Skilled labor shortage impacting rebuilding efforts
- Common mistakes that lead to adhesion failure
- Ikea to ditch single-use plastics by 2020 as part of sustainability push
- Atlanta’s initiative to bridge police-locality divide is paying off
- Research shows that physicians could be better served by EHRs
- ADA appeals to Congress to expand HSA/FSA flexibility for 2019
- Help your doctors and nurses work better together
See your work in future editions
Your content, Your Expertise,
Your Industry Needs YOUR Expert Voice & We've got the platform you needFind Out How