Economic Outlook 2015: Why it’s Positive for Housing
If you live in one of the top 20 metropolitan areas of the country, you have probably already witnessed a strong appreciation in your house’s value over the past several years. Based on my economic outlook for 2015, I believe there could be more to come for homeowners.
If you happen to own property in San Francisco or New York, you know the home prices in these areas have been surging to what seems like infinity.
While the best gains and easy money may be behind us as the Federal Reserve gets set to raise interest rates as early as September or October, the housing sector continues to show growth and opportunities for investors.
Also Read: What Is the U.S. Economic Outlook for 2015? Good, if You’re Rich
Why My Economic Outlook for Housing is Positive This Year
The Fed will begin to increase borrowing costs at some point. But I believe the increases will be calculated and steady rather than abrupt and rapid.
Mortgage rates are already edging higher, which is why you are seeing a move by the masses to buy homes at this time. The homebuilders also see this and have responded with over one million annualized home starts and building permits for over a year.
Some are saying the housing market is set to crash; I disagree. We will likely see some stalling in prices, but I don’t yet see a current bubble in the country’s housing market.
Interest and mortgage rates are heading higher, but will continue to be at relatively low levels by historical comparisons.
While 2015 still looks pretty good for the housing sector, we could see more stalling in 2016 with some headwinds. This is especially true should the economy stage a strong bounce that forces the Fed to raise rates quicker.
For the time being, the decent jobs creation and improved consumer sentiment will be a key tailwind for the housing sector.
The NAHB/Wells Fargo Housing Market index (HMI), which reflects the confidence of the home builders, was a healthy 59 in June, up from 49 a year earlier. (Source: NAHB, last accessed June 22, 2015.) A reading above 50 indicates positive sentiment in the housing market. It was the highest reading since September. The HMI suggests more building to come.
Home prices, as I said earlier, are also continuing to go higher. The S&P/Case-Shiller home price index jumped 5.04% year-over-year in March.
Chart courtesy of www.StockCharts.com
A look at the SPDR S&P Homebuilders ETF (NYSEArca/XHB) shows a steady upward move. This index is near its 52-week high and is a broad market play on the housing sector.
Chart courtesy of www.StockCharts.com
Areas that are faring well are the home supplies and services stocks. The top stocks in this segment are Home Depot, Inc. (NYSE/HD) and rival Lowe’s Companies Inc. (NYSE/LOW).
Home builders are also continuing to move higher. For instance, Toll Brothers Inc. (NYSE/TOL) delivered 5,397 units in fiscal 2014, up 29% on a unit basis and 46% based on dollars. The backlog stood at 4,387 units at the end of April, up one percent year-over-year. Revenues are expected to grow eight percent in FY15 and 19.6% in FY16 based on Thomson Financial estimates.
Also Read: U.S. Economic Outlook for 2015: Economy Strong but Markets Unstable
