A tract housing development in San Jose, California, United States
With mortgage rates anticipated to stay under 5% this year, Realtors expect U.S. sales of all types of existing homes to lift 6% and new single-family homes to jump a whopping 33%. Those figures come as builders ramp up home construction from low-growth years.
The median price is seen rising about 6% for all types of existing homes and 3% for new houses, in the National Association of Realtors’ April outlook report.
“Several markets remain highly competitive due to supply pressures, and Realtors are reporting severe shortages of move-in ready and available properties in lower price ranges,” NAR Chief Economist Lawrence Yun said in a statement Monday with the latest pending home sales report.
“The return of first-time buyers this year will depend on how quickly inventory shows up in the market,” he said.
Following demand patterns, homebuilders the past few years have tended to tailor their price ranges toward move-up and luxury buyers, not first-timers, though some homebuilders have waded back into that market in anticipation of an eventual flock of first-timers.
“First-time home buyers remain absent from the market, restricted by tight lending conditions,” National Association of Home Builders Chief Economist David Crowe said in a data release in March.
Low End Lifting?
With demand rising at the low end of the market for existing homes, prices for distressed properties have been going up.
Homebuyers — whether they’re investors or first-timers looking for an affordable place — now get about a third off the price of a comparable nondistressed home, according to the latest estimate by RealtyTrac. But that’s not as advantageous as the 40% off they got in September 2013, says Daren Blomquist, a RealtyTrac vice president.
Real estate site Zillow (NASDAQ:Z) predicted in December that 2015 would be a “breakthrough year for first-time buyers ” amid rising rents. It predicted that the best markets for first-time buyers, based on a variety of factors, would be Pittsburgh; Hartford, Conn.; Chicago; Las Vegas and Atlanta.
Builder Stocks In Focus
Builder stocks in IBD’s Builders-Commercial/Residential industry group are up 8% collectively this year, and the group ranks No. 55 in performance among 197 groups tracked.
Four stocks in the group hold an IBD Composite Rating above 90 (out of a possible 99) — Lennar (NYSE:LEN), D.R. Horton (NYSE:DHI), Standard Pacific (NYSE:SPF) and Toll Bros. (NYSE:TOL) The ratings are based on a variety of metrics from earnings growth to stock market performance.
Toll and Meritage Homes (NYSE:MTH) are among builders who’ve told IBD they’re encouraged by the recent pace of sales. The spring selling season is a key period for homebuilders, when homebuyers come out from wherever they have been wintering to shop for a new place.
The homebuilding industry faces profit-margin pressure this year amid potentially higher costs for lots and labor than during the lull years.
Despite the higher sales forecast for new homes this year in the NAR’s April outlook, 33.4% vs. 1.6% in 2013, housing starts are lagging so far this year. They fell in February to a seasonally adjusted annual rate of 897,000 in a Census report, 3.3% below the year-earlier rate.
Follow Donna Howell on Twitter: @IBD_DHowell.