The housing market was off to a fast start in 2017, as the economy strengthened and sales of both existing and new homes rose.
Demand for U.S. housing strengthened in January, as more plentiful jobs and improved business confidence kept the market running hot despite rising affordability challenges.
Existing home sales enjoyed a steep rise in January, climbing 3.3% to a seasonally adjusted 5.69 million units, the National Association of Realtors (NAR) said. That was the strongest sales pace since February 2007. All regions except the Midwest took part in the growth. With January’s gain, sales are up nearly 4% from year-ago levels.
The NAR also said the average sales price for existing homes rose 7.1% year-over-year to $228,900, marking the 59th consecutive month of annualized gains.
New home sales also expanded at the start of the year, although the rate of growth was smaller than expected. New home sales climbed 3.7% to a seasonally-adjusted 555,000 units, partially offsetting a 7% drop the previous month. New home sales are a more volatile segment of the market and therefore prone to large fluctuations.
Despite stronger sales, housing inventories remain razor thin. An inadequate supply of housing will keep prices trekking upward for the foreseeable future as demand for homes increases. At the current sales pace, unsold inventories are at a 3.6-month supply, NAR data show.
A separate indicator of homebuilder confidence in the newly-built housing market weakened slightly in February. The NAHB housing market index dipped to 65 in February from 67 the previous month, with builders citing “regulatory burdens” as a major challenge for the industry.
Stronger job creation continues to drive demand for housing. U.S. employers added 227,000 workers to payrolls in January, much higher than forecasts calling for 175,000, Labor Department figures showed. Job creation was primarily concentrated in financial activities, retail and construction.
In February, jobless claims fell to nearly 43-year lows, a sign the labor recovery was deepening. As of Feb. 18, jobless claims had been below 300,000 for 103 consecutive weeks. The four-week average for claims reached the lowest level since 1973.
The U.S. economy also saw evidence of faster inflation at the start of 2017. Consumer price growth rose at an annualized 2.5% in January, the fastest in nearly four years. Faster inflation is a strong indication that wages are also accelerating, boosting households’ ability to absorb rising mortgage costs.
The election of Donald Trump to U.S. President has been a boon to Wall Street and the business sector, boosting household wealth and the nation’s economic outlook. A measure of small business confidence strengthened in January to its highest level in over 12 years, a sign that business owners were confident that faster growth is coming. The NFIB small business optimism index rose to 105.9 in January, following the largest month-on-month increase in the survey’s history.
Small businesses that employ fewer than 20 workers represent nearly 98% of U.S. firms and are a major contributor to overall employment. Small-and-medium-sized enterprises that employ fewer than 500 workers account for 99.7% of all business establishments in the U.S.
Safeguarding domestic jobs and creating more competitive tax rates for businesses are at the center of Trump’s America-first policy. The President would like to see the economy expand more than 3% annually during his tenure. That expansion rate proved elusive for the Obama administration, with 2016 marking the eleventh consecutive year GDP growth was below 3%.