First Half of 2016 a Solid Winner for Real Estate

By James Woodard

August 15, 2016 5 min read

With the real estate market showing consistent improvement during the first half of this year, an exceptionally large number of people have joined the National Association of Realtors as home selling agents or investment specialists.

This was noted by Jonathan Smoke, chief economist for Realto.com. "Total home sales are up 5 percent compared to the first half of 2015 and median existing home prices are up 5 percent as of June, setting a new record. Also, a rise in equity for home owners may encourage them to consider selling."

Yet, Smoke doesn't expect the strong market to stay this strong in the second half of the year.

"All ages have been tempted by near-record lows in mortgage rates prompted by global economic weakness and instability driving investors toward U.S. bonds, but even with all that demand, the market can grow only so much, because of the limited inventory of homes for sale. At today's pace of sales, existing home inventories would be used up in 4.6 months."

"Eventually, without substantial growth in existing and new-home inventories, sales growth will probably flatten and even decline - despite strong potential demand," Smoke says.

"As long as mortgage rates do not increase substantially in a short period of time (such as 100 basis points over the next six months), the real estate market should remain strong," Smoke says. "After all, the underlying reason for higher rates is a stronger economy; so the benefits of that will offset the impact of marginally higher rates.

"A stronger economy, more jobs, lower unemployment, and higher wages will power demand. Higher rates will also likely help loosen credit. Those positive conditions coupled with demographic tailwinds from millennials and boomers will keep the U.S. housing market healthy and strong for at least two more years."

Q: What is the meaning about all the affordability indexes we hear about?

A: An interesting report on affordability indexes was recently released by the Mortgage Bankers Association:

"The Research Institute for Housing America (RIHA) released a new report, The Affordability of Owner-Occupied Housing in the United States: Economic Perspectives, which looks at four major forms of affordability indexes, compares their methodology, and tests their validity in predicting current and historical features of the housing market.

"The study was authored by Donald R. Haurin, Professor of Economics, Emeritus, Ohio State University.

"Many analysts comment on the extent to which housing is affordable. However, the precise meaning of 'affordability' is hard to pin down. And existing affordability indexes do not seem to predict housing variables of interest," said Lynn Fisher, RIHA's Executive Director and MBA's Vice President of Research and Economics.

"Taking a critical look at these indexes, Dr. Haurin finds that consumer expectations about future house prices are an important variable to consider. If home prices are expected to increase, it effectively lowers the cost for a homebuyer purchasing today, because they will benefit from that capital gain. "

Q: Are mortgage applications rising?

A: No, applications are decreasing. They fell by 3.5 percent during the past week, at last report.

Q: Are prospective homebuyers spending more time checking homes listed on real estate websites?

A: Apparently so. Buyers now spend an average of 55 minutes per day on visits to those websites, according to the Google site.

Q: Are mortgages becoming more available?

A: Yes. Here's a report from the Mortgage Bankers Association:

"Mortgage credit availability increased in July. Starting this month, MBA has updated its methodology to better measure credit availability and has released a new historical series based on this updated methodology.

"As part of this change the Conforming and Jumbo MCAIs have been updated to only include conventional, non-government loan programs. More information about these changes is available at www.mba.org/MortgageCredit.

"The MCAI increased 1.0 percent to 165.3 in July. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. "

To find out more about Jim Woodard and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com. Jim Woodard's email: [email protected] COPYRIGHT 2016 CREATORS.COM.

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