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The economy's growth rate was slow for the beginning of 2017—consumer spending and inventory investment were both down—but the housing market remained strong. The resilience of the market was attributed in part to an increase in the demand for homes fueled by lower interest rates. In addition, unemployment fell to its lowest level since 2001. With more potential home buyers employed, the demand for homes increased.
Low Mortgage Rates
As mortgage rates fall housing affordability improves, which makes the dream of purchasing a home a reality for more home buyers. In March, rates for the 30-year fixed-rate mortgage climbed to 4.3 percent. Since then, however, rates have fallen by about one-quarter to hover near 4 percent. Analysts with Freddie Mac believe mortgage rates could climb higher by the end of the year, which could fuel home sales in the coming months.
A Small Boost to Supply
As buyers rush to purchase homes before mortgage rates climb, demand will increase. However, the housing market has long been hampered by a supply shortage. This lack of supply already led to an increase in housing prices. According to the Freddie Mac Housing Price Index, home prices rose an average of 6.4 percent year over year. To solve the housing shortage problem, the number of new homes under construction needs to increase. In March, new-home construction was still low in comparison to long-run demand; prices will remain high as a result. However, total housing starts in the first three months of 2017 were the highest recorded since 2007.
Better Than Expected Sales
In March, existing-home sales climbed to their highest level since 2007. New-home sales also exceeded predictions. Analysts now believe home sales will continue to increase throughout the year. What's more, with such strong sales figures, and with home values and housing starts on the rise, this year's housing market could eclipse 2016's.
