February 24, 2015 / 3:18 PM / 5 years ago

Strong jobs market to spur U.S. housing in 2015: Reuters poll

WASHINGTON (Reuters) - U.S. housing is set to gain steam this year as a strengthening jobs market offsets the drag from an expected increase in mortgage rates, a Reuters poll showed on Tuesday.

People work on a construction site to build a new apartment building in Los Angeles, California February 6, 2015. REUTERS/Lucy Nicholson

Housing activity has been sluggish since hitting a speed bump in the second half of 2013, with sales constrained by tight inventories and higher prices sidelining first-time buyers.

“We expect the housing market to improve this year. It is only a matter of time until the improved jobs market has a positive effect on the housing market. We are betting that first-time buyers return this year,” said David Nice, an economist at Mesirow Financial in Chicago.

The survey forecast the S&P/Case Shiller composite index of prices in 20 metropolitan areas rising at an average of 4.0 percent this year and next.

In November, the index had been forecast increasing at an average of 3.6 percent in 2015 and 3.1 percent next year.

Home sales, however, will likely remain sluggish early in the year before picking up in the second quarter and maintaining a brisk pace for the rest of the year.

Sales of previously owned homes were forecast at an average annual rate of 5.10 million units in the first quarter, rising to 5.17 million units in the second quarter.

That was below the 5.20 million-unit rate for the first quarter and 5.26 million units for the April-June period that economists had forecast in the November survey.

Data on Monday showed existing home sales tumbled to a nine-month low in January.

The survey forecast home resales averaging a 5.20 million-unit rate in the third quarter, with robust job gains expected to translate into sturdy wage gains.

Wages have lagged increases in house prices, keeping first-time buyers on the sidelines.

MODERATE RATE INCREASE

The economy has added more than a million jobs over the past three months, a performance last witnessed in 1997. A key gauge of labor market slack - the number of job seekers for every open position - hit its lowest level since 2007 in December.

Tightening labor market conditions are expected to encourage the Federal Reserve to start raising interest rates later this year, which will push up mortgage rates.

The increase in mortgage rates, however, is likely to be less steep than previously anticipated.

The survey forecast the 30-year mortgage rate averaging 4.00 percent this year and rising to an average of 4.58 percent in 2016. That compares to an average of 4.55 percent and 5.20 percent respectively in the November poll.

The 30-year mortgage rate is currently at 3.76 percent.

Also boding well for housing, the government has taken steps to make credit more accessible to first-time buyers, many of whom are saddled with huge college debts.

A jump in the rate at which Americans are setting up home in the fourth quarter is also a good omen for housing. Strong household formation should encourage builders to break ground on new projects and help to improve housing inventory.

“The overall picture is looking brighter as increased household formation is supported by improvements in the labor market,” said Stephanie Karol, an economist at IHS Global Insight in Lexington, Massachusetts.

Relatively high house prices will lift more homeowners back above water and increase equity in the property.

“Soon, there the improvement in equity positions will be large enough that owners who couldn’t sell but wanted to will be able to list their units. That would increase supply and make house shopping easier,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

(Reuters poll stories on other property markets:)

Polling and analysis by Deepti Govind and Sarbani Haldar; Editing by Ross Finley and Chizu Nomiyama

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