Rising income is necessary to raise home prices
What has been lacking in the market is the fact that jobs have not improved much and neither has income. Without the hedge funds driving up prices, it’s back to fundamentals like the ratio of income to housing prices. Sharply improved economic growth in the second quarter is good news for the housing market Freddie Mac’s lead economists said today. GDP growth was 4.0 percent in the second quarter compared to -2.1 percent in the first
Household formations are picking up and housing starts are projected to increase 28 percent over the 2014 rate to 1.3 million units in 2015. Long-term interest rates will likely move up with 30-year fixed-rate mortgages at about 5 percent by the end of next year.
Jobs are a fundamental driver and with the employment sector picking up steam, more and better jobs should lead to greater housing demand. The strongest housing markets today are those with the strongest labor statistics. As the labor market expands it will stimulate housing by driving household formations and housing demands in more markets.
Rental market vacancy rates are at the lowest levels in over 14 years. The inventory is still tight both for rental s and sales. This should further abate as building starts picking up and people feel more positive about their jobs and their ability to afford a house. Interest rates are still low and housing prices have moderated.
This is a good scenario for investors.