Mortgage affordability has remained mostly favorable, causing demand for homes in the market to rise at a rapid pace but supply remains at a disadvantage.
In addition to affordability factors, job creation is increasing and banks are loosening credit standards, so it is no wonder that mortgage applications are up by 30 percent year-over-year, according to Capital Economics Property Economist, Matthew Pointon.
On the downside, growing demand in the housing market is not being met with an increase in supply. Pointon reported that the months’ supply of homes for sale recently hit at 10-year low. This mismatch is causing home prices to skyrocket.
"Buyers can only benefit from those low mortgage payments if they can get a mortgage in the first place," Pointon explained."
Home builders may be a little hesitant in the confidence arena but despite the lack belief in the market, they do appear to be building more homes in the U.S. This rebound in homebuilding is expected to continue throughout the year, but will it solve persistent inventory issues?
The U.S. Census Bureau and the HUD on Wednesday jointly released new residential construction statistics for February 2016, which showed single-family housing starts bounced back more than expected in February to their highest level in five months, led by a the largest jump in single-family units in nine years.
According to the data, February's housing starts rose 5.2 percent to an annual rate of 1,178,000, compared to January's estimate of 1,120,000. Year-over-year housing starts experienced major gains, rising 30.9 percent compared to the February 2015 rate of 900,000. Overall starts have not been this high since September 2015 when the figure was 1,207,000.
On the singe-family side, housing starts were at a rate of 822,000 in February, up 7.2 percent from the revised January figure of 767,000. Single-family starts have not been this high since November 2007 when they were at 833,000.
"The very positive single-family report further supports other housing and general economic reports that the housing recovery continues unabated," said David Crowe, National Association of Home Builders Chief Economist and SVP. "Low mortgage rates, increases in employment, continued US economic expansion and growing pent up demand particularly among existing home owners are supporting more single-family home building.
In the midst of tight supply, heightened competition for buyers, and unpredictable financial markets, U.S. home prices continued to rise in the fourth quarter.
The Federal Housing Finance Agency's (FHFA) House Price Index (HPI) shows that home prices rose 5.8 percent year-over-year in the fourth quarter of 2015. Prices increased 1.4 percent from the third quarter of 2015, marking the 18 consecutive quarterly price increase in the purchase-only, seasonally adjusted index. Home prices were up 0.4 percent month-over-month for December.
“Instability in financial markets did not seem to put much of a drag on home prices in the fourth quarter,” said Andrew Leventis, FHFA Supervisory Economist. The 1.4 percent rise in home prices "was in line with the extremely steady—but historically elevated— appreciation rates we have been observing for several years now."