November’s existing home sales came in at their highest point since 2007, according to a report from the National Association of Realtors, however, experts say there could still be a problem as we head into 2017.
The increase is definitely great news for the housing industry. In fact, NAR Chief Economist Lawrence Yun stated that the housing market is at its best point now than it has been since the great recession.
“The healthiest job market since the Great Recession and the anticipation of some buyers to close on a home before mortgage rates accurately rose from their historically low level have combined to drive sales higher in recent months,” he said.
One expert agreed that November existing home sales came in much higher than the industry expected.
“Once again in November, sales of existing homes showed surprising strength, defying expectations for a modest monthly decline and instead growing for the third straight month,” Zillow Chief Economist Svenja Gudell said.
Gudell pointed out that some might say the threat of rising interest rates pushed buyers to an earlier close, therefore boosting November's sales at the expense of later months, but disputed that idea.
“But in reality, rates haven't really risen enough over the past few weeks to make buying a home meaningfully more expensive for most — the recent rate rises amount to an extra few cups of coffee per month in added expenses, hardly anything to change a major decision over,” she said.
However, that could change if rates continue their upward climb.
“As mortgage interest rates rise further, however, it's likely that buyers in the nation's more expensive coastal markets will begin to feel the pinch sooner than their peers in more affordable areas in the middle of the country,” Gudell said. “But for now, interest rates aren't having too much of an impact, and instead simple market fundamentals are driving the changes we're seeing, including a consistently improving job market, growing wages and decent household formation, all of which help to keep demand at a boil at the same time as inventory remains incredibly tight.”
But rising interest rates aren't the only thing that caught experts’ attention. The inventory shortage continues to plague the market as it struggles against increasing demand.
“Sales continue to grind upward, buoyed by a healthier job outlook that has led consumers to get off the fence and buy the home of their dreams,” Quicken Loans Vice President Bill Banfield said. “However, this increase in demand has continued to constrain a market that is already experiencing a shortage of inventory, and rising prices as a result.”
Mark Fleming, First American senior vice president and chief economist, told HousingWire that new construction will be vital in 2017.
“The need for new housing to be more affordable I think will be more important than it’s been in a long, long time,” he said.
As far as 2016, Gudell says we’re right back where we started the year.
“All this means is that we look set to end 2016 the same way we started it, with modestly accelerating home value growth and a shortage of homes available to buy to soak up the rampant demand in the market,” Gudell said.