Stronger hiring boosts outlook for U.S. home sales: Reuters poll

WASHINGTON Wed Aug 27, 2014 10:40am EDT

Construction workers frame a new subdivision project of residential homes in Glenelg, Maryland September 25, 2013. REUTERS/Gary Cameron

Construction workers frame a new subdivision project of residential homes in Glenelg, Maryland September 25, 2013.

Credit: Reuters/Gary Cameron

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WASHINGTON (Reuters) - Stronger job creation in the United States is making economists more optimistic about the outlook for home resales over the next two years, according to a Reuters poll that showed little change to expectations for house price rises.

The annual pace of existing home sales will likely rise to 5.25 million units in the first three months of 2015 from 5.09 million in the current quarter, according to the poll's median forecast.

In May, economists expected much slower gains, with 5.1 million resales expected in the first quarter of next year.

Much of the added optimism draws from the six consecutive months through July in which U.S. employers added more than 200,000 jobs. The median says the annual pace of home resales will rise to 5.29 million in the second quarter of next year.

"Low mortgage rates and improving labor market dynamics should remain conducive to gradual growth in the housing sector," Gennadiy Goldberg, a strategist at TD Securities, said in a recent note to clients.

A sharp increase in mortgage rates pushed sales of existing homes lower in the second half of 2013 but borrowing costs have been more stable in recent months and sales have recovered some of the lost ground.

Investors and economists polled by Reuters generally expect the Federal Reserve will begin to slowly increase its benchmark interest rate around the middle of next year after holding it near zero since 2008. [ECILT/US]

Most analysts saw mortgage rates rising more slowly than they did in the last Reuters housing market poll in May.

The median forecast put the 30-year mortgage rate at 5.25 percent in 2016, down from 5.68 percent in the May poll. Last week, the 30-year rate averaged 4.28 percent, according to the Mortgage Bankers Association.

Some policymakers and economists worry inflation could unexpectedly surge and prompt faster rate hikes, and many analysts polled said this was the biggest risk to the housing recovery.

But economists generally said the housing recovery won't be deterred by a slow increase in rates, which could be a symptom of an improving economy while also helping to bring home price appreciation back down to more sustainable levels.

"If a rise in mortgage rates comes with a stronger economic recovery, the housing market will be able to absorb it," said Alexander Lin, an analyst at Bank of America Merrill Lynch.

The S&P/Case-Shiller gauge of property values in 20 metropolitan areas was seen rising just 5.0 percent in 2015, slower than the expected 8.0 percent this year. That is roughly steady compared with a poll taken three months ago.

For much of the last year, the index had posted double-digit gains, fueling concerns many potential home buyers would be priced out of the market.

Property analysts don't appear to have much conviction on whether the market is getting too expensive, either.

Asked to judge whether the U.S. housing market was fairly valued on a scale of one to 10, with 10 being extremely over-valued and one being extremely undervalued, the median answer was five.

The Reuters poll surveyed 29 analysts, though not all answered every question.

(For stories on the British housing market see)

(Polling by Siddharth Iyer and Sarbani Haldar; Editing by Chizu Nomiyama)

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