The national housing data have been quite impressive this year. Existing-home sales were up 9.4 percent last year and are on track to match with similar increases this year. New-home sales are showing even better percentage gains, though off very low levels after having collapsed by more than 70 percent during the Great Recession. Home prices have also been rising at a faster pace than almost anyone expected, with national median prices projected to rise 11 percent this year.
Even though the Great Recession has been in the rear view mirror for some time, a number of observers ask whether the recovery is sustainable, and whether currently expanding housing demands are likely to overheat. Job creation has been relatively weak, but government policies now seem to be strongly focused on getting people back to work. At this point, the economy and job creation are forecasted to be on an upswing – at least for the next year and probably significantly beyond. In addition, there is major pent-up demand in the housing markets, providing a base for expanding sales. Overall, the demand nationally for new construction is in the neighborhood of 1.6 million new homes each year to accommodate household formation, second home demand, and demolitions. New construction has been running well below that figure for a number of years and will need at least another year to ramp-up, so home inventories are likely to remain constrained for the immediate future. Put differently, there is substantial support for housing demand and prices. In view of constrained lending practices by financial institutions, however, continuation of the rapid price appreciation we have recently been experiencing on a year-over-year basis appears unlikely. The rate of price appreciation appears likely to slow somewhat, being both income and appraisal constrained.