The housing market has been off to a roar this spring. In fact, the market is performing so strongly that the National Association of REALTORS® has upgraded its forecast for the year.
At the start of the year, home sales were expected to match last year’s pace due to higher mortgage rates and diminishing affordability. But the market is hardly slowing down, notes Lawrence Yun, NAR’s chief economist. He now predicts existing-home sales to rise by 3.5 percent, and home prices likely will increase 5 percent this year.
Home sales are strong: Real estate professionals report an increase in foot traffic at listings and mortgage applications to buy a home remain above year-ago levels. Also, signed contracts to purchase a home are essentially running at decade highs, Yun notes.
“Not only are the buyers out in the market, but they are committing quickly,” Yun notes in a recent column for The Hill. “The typical days on the market for a newly listed property is short at only a month. A month’s supply of inventory is less than four months, which is well below the six to seven months that is considered more balanced.”
Escalation clauses in contracts are reportedly growing. This is where a potential buyer bids on a home at one price but is willing to raise the bid if the seller receives any higher bid.
But the hot market shouldn’t offer up any fears of a housing bubble, Yun notes. Unlike years past, buyers are coming in with higher down payments and higher credit scores. Also, the lack of new-home construction is another reason not to fear a bubble, he says. Prices don’t drop when there are inadequate supplies, and homebuilding is basically at half the level it was in the mid 2000s.
The strengthening housing market is becoming one major contributor to economic growth too, Yun notes. Higher home prices and housing equity will help give a boost to consumer spending, he adds.
“With no imminent threat of a recession, the housing market’s strong first quarter sets the foundation for continued gains the rest of the year,” Yun writes.