Monday’s pending home sales report hugely beat expectations, with pending sales rising 3.1% in February. This was much stronger than the 0.3% gain forecast by economists.
Furthermore, it’s just one more piece of evidence that the housing market’s upswing is far from over.
Deutsche Bank chief international economist Torsten Sløk circulated a chartbook detailing his outlook on the economy. One of the big areas he focused on was the US housing market. Sløk notes several promising indicators that could lead to a housing takeoff over the next few months and years.
Housing prices have been steadily rising over the last three years, and are back to pre-crisis levels:
After the Great Recession, many millennials were forced back into their parents’ houses, with nearly 15% of adults aged 25-34 living at home in 2014, according to the Census Bureau. Sløk observes that this trend may be starting to turn around: Rates of household formation have been surging recently, likely fuelled by those millennials moving out. This could lead to a huge jump in housing demand should this surge continue:
That same millennial cohort has seen a big recovery in employment, which could lead to further household formation and housing demand:
Meanwhile, the aftereffects of the burst of the mid-2000s housing bubble are beginning to subside. The share of distressed sales among all home sales is way down:
Foreclosure rates are back near pre-crisis levels:
The US may even be moving closer to a housing shortage. The number of homes for sale is lower than it’s been in over a decade:
Rental vacancy rates are lower than their pre-bubble average, indicating a shortage of rental units as well:
With the rental unit shortage implied above, homeownership might become a more attractive option for recently formed households. Renters have dominated new household formation over the last several years, and many of those renters may want to buy their own homes in the future:
With the economic situation improving for young adults in their prime household formation and home buying years, foreclosure and distressed sales rates returning to some semblance of normalcy, and increasing pressure in the rental market, Monday’s big jump in pending home sales might be just the start of a much stronger housing market.