The Housing State of the Union: We’re Back, Baby!

Reprinted News Trends article from

Jonathan Smoke

6:00 am ET
January 7, 2016








Alex Belomlinsky/iStock

Next week, we’ll hear President Barack Obama’s State of the Union address. Here at®, we think it’s also a great time to review the state of the nation’s housing market. Let’s go!

Once the final data on 2015 are complete and tabulated, I’m pretty sure that we’ll see that it was a great year of growth and improvement—one that sets the stage for a return to normalcy in the months and years ahead.

But not all parts of housing are close to normal.

On the sales front, there were more sales of both existing and new homes in 2015. Judging from the data reported through November, new-home sales were up 13% and existing-home sales were up 7%.

That higher volume of sales was supported by strong household formation (1.4 million households formed in the past four quarters ending in September) and another year of solid job creation (an average of 210,000 jobs per month through November). Normal, nondistressed sales increased among first-time and repeat buyers, and buyers who were relocating and/or changing jobs.

Not every type of sale increased in 2015—and that’s OK. Distressed sales declined, as did sales to second-home buyers, investors, and international buyers. Net-net, we got more of what we want and less of what we don’t want, so from that perspective, the growth in 2015 was especially good.

Home prices rose 5% to 7% nationally in 2015, depending on what metric you choose. Such appreciation helped owners see substantial gains in equity. Home values are close to being fully recovered nationally.

This level of price appreciation is well above a normal rate as a result of an imbalance in supply and demand that favored sellers. Indeed, on a year-over-year basis we saw lower inventory levels and faster-moving inventory every month in 2015.

Normally, such price appreciation and evidence of strong demand would see a substantial increase in new construction, but most of the growth again occurred in apartments rather than single-family homes. Even with more than 20% growth in total new construction, we will have created only a net new 900,000 housing units, which is less than 65% of the new households we created.

Most of the new households forming are renting households, and that’s where the demand-supply imbalance is most acute. Apartment vacancies are at multiyear lows, and correspondingly, rents are now rising faster than home prices. While it may sound like a real estate agent’s dream to say that it’s cheaper to buy than rent in more than 75% of the country, that sound bite doesn’t bode well for the future. When renting households are so burdened by making rent payments, they’re less able to save up to own.

But from another perspective, affordability remains strong despite higher home prices, as we ended 2015 with only marginally higher mortgage rates. Economic weakness in Asia and Europe, unrest in the Middle East, and a jittery stock market kept rates low in 2015. Does that sound similar to this week’s news?

Still, not everyone can take advantage of low mortgage rates, as credit access remains tight. Access improved marginally in 2015 mainly as a result of more low-down payment mortgage products and lower mortgage insurance premiums on FHA loans. Average credit scores still reflect the fact that mainly households with the best credit are successful in getting approved for a mortgage.

Looking across the national housing landscape, the housing market has stronger fundamentals now than one year ago. However, we need new construction to keep up with the household formations driven by demographics and healthy job creation. We need more affordable housing to decrease the impact of burdensome rents. And we need expanded, risk-appropriate access to credit to help households that can afford to buy.

Of course, there’s no such thing as a U.S. housing market—like politics, all real estate is local. Affordability will start to play a bigger role as we move forward, and that factor will favor some regions over others. Markets that are able to see more new construction that can keep pace with household formation and job creation are more likely to see sustainable economic growth.

Jonathan Smoke
Jonathan Smoke is the chief economist of, where he analyzes real estate data and trends to develop market insights for the consumer.

Follow @SmokeonHousing