Through the first 10 months of 2017 the US residential housing market has produced a show of strength that has promised to push values higher both in the coming months and into 2018. Of course, events like hurricanes and other disasters will roil specific markets. However, the reasons for the strong values should provide an assurance to real estate investors that this asset class will continue to be the place to invest.
Residential Housing Market Year-to-Date
By any measure, single family residences continue to demonstrate the type of strong market value that will bring more investors into the market. Prices are one key metric, and the September median list price is up 10% over the same period as last year. This measure of the market hit a high of $275,000 over the summer, according to Realtor.com. Best of all, this is the result of a slow and steady increase, indicating broad strength in the sales of single family homes.
The same is seen in other measures such as time on the market. This has fallen to 69 days as of the end of September. This is a remarkable 10% reduction in the number of days it took to sell a home in comparison to 2016. Faster sales are a clear sign of a robust market. Just like rising prices, this metric shows that demand is outpacing supply, which is as close as to a textbook definition of a strong market as possible in the real world.
Key Drivers of The Housing Market
The reasons for these strong numbers are even more encouraging. While many commentators have suggested that this market performance is due to the supply side of the equation, the fact is that single family home construction increased by 1.6% in August, the last month for which statistics are currently available. This brings the year-to-year increase to 8.6%, higher than the average annual increase of 6.9% the market has experienced since the bottom following the housing market meltdown.
Home construction companies may be experiencing some difficulty in filling jobs in order to increase the number of housing starts. The unemployment rate fell in September to 4.2%, and even the “real unemployment rate” which includes discouraged workers who have dropped out of the labor market fell to 8.3%, also lower than historic averages. These low rates of unemployment are a very positive sign for the economy and the market for single family housing.
Interest Rates Benefit Investors and Owners
While endless speculation about approaching interest rate hikes continues unabated, the fact is that interest rates are at historic lows, and even “normal” increases will not bring them anywhere near their long-term averages. This ability to borrow money is a key driver of value in the single family residence market. Both owners and investors frequently employ leverage to finance the purchase or renovation of a house intended as a single family residence.
Low interest rates, low unemployment rates and a constrained ability to increase the supply all bode well for real estate investments for the remainder of 2017 and into 2018. These factors differentiate the current sustained increase in property values for single family homes from previous speculative bubbles. Both novice and experienced real estate investors can have confidence in potential payouts from both short and long-term real estate purchases.
