While it’s been a long, long time coming, the housing sector in the US is finally starting to look better, thanks to millennials and homebuilders, who are starting to produce more of the “starter houses” that young homeowners are demanding. This is the conclusion drawn from a new report yesterday, showing that more new homes were sold in July than in nearly 10 years. The government said that buyers purchased single-family homes at the annual rate of 654,000, the highest rate since October 2007. This is 31 percent higher than a year earlier. While these are volatile numbers that include a wide margin of error, when combined with other evidence it seems like the US housing market is finally on the mend.
Builders have begun working on new housing units at a pace of over 1 million homes a year every month since April 2015, more than double from a low of 478,000 in the spring of 2009. For eight of the past nine quarters, residential investment has made a positive contribution to overall gross domestic product. There are some good signs with home price trends; in the new Census Bureau report yesterday, the median sale price for new homes actually fell, indicating that there’s more supply being built at the lower end of the housing market (the exact kind of houses that young adults can afford).
The data hasn’t been adjusted based on the size and quality of houses, implying a shift toward slightly smaller houses. Yet home price data adjusted for price and quality shows gradual price gains. The S&P/Chase-Shiller home price index composite of 20 major cities has been rising at around 5 percent for two straight years, a bit higher than the rate of growth in incomes but still not as troublesome as the double-digit percentage gains that characterized the peak of the housing bubble. In the 10 years since then, young adults have entered their prime in home-buying time. However, relatively few new houses have been built to fulfill this eventual demand. Homeownership has been falling steadily since 2004, reflecting a weak economy and the lack of affordable housing supply in hot markets. The current question is how far the housing expansion has to run with pent-up demand.
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