The chief economist with the Mortgage Bankers Association, Mike Fratantoni, is concerned that home prices have been increasing twice as fast as wage growth. In February 2018 alone, existing home prices rose +3.0% nationally from January 2018 figures while wage growth continued to be stagnate at less than 0.1%.
This state of prices in the housing industry is a simple lesson of supply and demand. The less inventory (supply), the higher the prices.
Fratanoni said, “This appetite for home ownership comes before the peak of the Millennial generation reaching the age of first time buyers.” With an overall rise in the annual rate of existing home prices standing at +6.2%, according to the S & P CoreLogic Case Shiller Index, prices nationally are now +6% higher than the housing market’s peak in 2006.
Adding insult to injury, the lack of gain in average hourly earnings, according to latest government employment reports, represents just a +2.6% advance on an annualized basis.
Fratanoni said, “The major constraint in the housing market right now is the lack of supply. The absolute number of units on the market is near an all-time record low.”
Homebuilders are trying to increase the pace of construction and have. The number of completions was up +7.8% in 2/18, the highest level since 1/08. But the number of housing starts in 2/18 was down -7.0% for the second straight month. And the number of housing construction permits was also down -5.7%. Fratantoni’s words…”It’s not fast enough.”
The MBA economist continued. “There is just going to be this wave of housing demand hitting the economy over the next 4 – 5 years (as Millennials come of house buying age). And we think (this wave of housing demand) is going to bolster steady and insatiable growth over this coming time period.”
