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US real estate is so large and complex that it can sometimes be hard to get a good view of the health of the market. Between the boatload of data and the nearly 70 million single-family homes, it’s rare to get a full picture of the state of the housing market.
Ryan Marshall, CEO of the homebuilder Pulte Group, however, laid out the state of the US housing market in one succinct quote.
“With US new home sales for 2016 on track to grow in excess of 10% over last year, we believe housing demand remains on a sustained path of recovery fueled by ongoing job creation, low unemployment, a supportive interest rate environment, and a limited inventory of homes,” Marshall said in a press release announcing Pulte Group’s third-quarter earnings.
Let’s break that down a bit.
Marshall is correct that new home sales are on track to grow by over 10% this year. In fact, single-family home sales grew over 20% for June, July, and August compared with the same months in 2015.
To Marshall’s job creation point, what may be even more important than an unemployment rate hovering at or below 5% is that wage growth and pay raises are starting to come through for American workers. This even showed up for Pulte Group, which saw new orders increase 17% in the third quarter – much higher than the 11.2% expected by analysts. Thus, with a tight labor market leading to higher incomes, more people have the ability to purchase a home.
Additionally, the low inventory is indeed supporting prices and well below demand. While this may be a good thing for homebuilders like Marshall, it is also making it difficult for first-time homebuyers to find affordable houses as the high demand and low supply push prices higher.
The low interest rate aspect is interesting. It’s true that low interest rates are making it more affordable to get a mortgage. These low mortgage rates, however, may not provide incentives for people to move from their current homes, as we’ve noted before, keeping existing home sales a bit lower and worsening the supply issue.
For new homebuilders like Marshall’s Pulte Group, the low interest rates are most likely an unequivocal positive, but for homebuyers and the overall housing market, low rates may be as much a curse as a blessing.
Other than that, Marshall hit the nail on the head with his assessment of the US housing market.
Pulte Group’s earnings came in just a hair under expectations – at $0.43 a share, versus analysts’ expectations of $0.44 per share. Revenue was also nearly in line, at $1.94 billion against expectations of $1.95 billion. The firm’s expected backlog sits at $3.7 billion currently.