Tightening inventory helps flagging housing market

Tightening inventory helps flagging housing market

by DeVore Design, October 5, 2015

House prices are picking up again on the back of a very tight housing market, says Matthew Pointon, Capital Economics’ property economist.

“But over the next couple of years, as greater numbers of new homes come onto the market and owners of existing properties see more opportunities to move, conditions should ease, leading to a steady rise in housing market activity and prices,” he says.

Pointon says the weather-related slowdown in GDP growth at the start of this year has been followed by a sharp second-quarter rebound. But weak job figures in September suggest the Fed will now delay raising interest rates until early 2016.

“A loosening in mortgage lending criteria and a gradual rise in earnings growth will ensure affordability remains favorable when interest rates do start to rise,” he said.

Tight market conditions are leading to renewed upward pressure on house prices, which are likely to end the year up by around 6% compared to a year earlier, Pointon said.

Housing starts are increasing at a robust pace, and homebuilders are at their most confident for 10 years. Starts should therefore reach 1.2 million by the end of the year.

“A very low rental vacancy rate points to a rise in rental value growth, although weak earnings growth will limit the extent of that rise,” he said.

The drop in prices in San Francisco and Chicago over the past three months appear to be confined to the cities, rather than indicative of a state-wide slowdown, he said.

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