Lately, there has been a bit of concern regarding the state of the U.S. housing market. Of course, this is nothing new. The state of the housing market changes so often that it seems we're always worried about it. Yet, according to a new report by Nationwide, its actually doing pretty well right now. Nationwide's Health of Housing Markets Report found that the U.S. housing market is not only healthy in its current state but it also reported that most local housing markets are likely to expand relatively soon.
The HoHM report used the Leading Index of Healthy Housing Markets as a measurement of U.S. housing market health. The LIHMM uses 400 metropolitan statistical areas and divisions across the U.S. and measures their performance based on several key metrics. The report explained that the national LIHMM's "healthy zone" is anything above 100, and for the first quarter of 2016 it stands at 105.4. The regional LIHHM measurements also indicate healthy housing markets all over the country, meaning the majority of regional markets are not at risk of declining.
Despite the fact that the final quarter of 2015 experienced an unexpected decrease in household growth, the report projected the housing market will continue to grow and that any negative affects that final quarter had on the LIHMM should soon vanish.
Why people are still worried
Based on the HoHM report, the housing market appears to be healthy - and getting healthier - but there must be a reason people are feeling anxious about it.
Forbes contributor Sara Zervos said there are three main factors contributing to the fear of a housing market downturn: an unstable stock market, stricter credit regulations and a decrease in consumer confidence. She explained that, due to falling energy prices and China's weakening economy, the stock market has been pretty volatile lately. Housing and economic activity are intertwined, and as a result experts believe that these outside factors could weaken the housing market.
In the realm of credit regulations, Zervos explained, lenders have begun to make it more difficult to obtain loans with the goal of preventing another housing bubble. Consumer confidence has lowered due to the uncertainty of the stock market. This is important because when consumers are not confident in the market, they will not be as willing to purchase a home.
Why these factors shouldn't scare us
According to Zervos, despite some uncertain economic activity and stricter credit regulations, there are other, more positive factors that will trump the volatile stock market and help the housing market grow. These factors include low interest rates, low inventory and a decreasing unemployment rate, which has fallen below 5 percent.
Indeed, the HoHM report seems to agree. When people's income and employment situations improve, it explained, there is generally a growth in household formations and thus a growth in demand for housing (both rented and owned). In fact, employment is one of four factors the LIHHM uses to determine the health of an MSA's housing market. The other three are demographics, mortgage market and house prices.
The only MSAs the report said will continue to struggle are those in states whose economies are dependent on energy. Job growth has taken a turn for the worse in states like Louisiana and Texas due to falling oil prices.
How to tell if your local housing market is healthy
Now you know that overall, the U.S. is experiencing a healthy housing market, but of course what matters most for each individual is the health of their local market. Connecticut-based Total Mortgage discussed a few key ways to tell if your housing market is healthy:
- Find out the months' supply measurement in your area. The months' supply is a number based on how many homes are currently on the market as well as how quickly they are selling. The magic number that indicates a healthy housing market is a 6-month supply.
- Assess how quickly home prices are increasing and decreasing. If they are moving up at a rate higher than 5 percent annually, the market is unstable. Your housing market is also likely unstable if home prices have been depreciating annually.
- Ask your real estate agent about the list-to-sale ratio in your area. This form of measurement compares what homes are selling for in comparison to their asking prices and can help sellers figure out how to price their home for a sale. When the list-to-sale ratio exceeds 100 percent, you are working with a seller's market and will probably experience high demand for your home. If the number is under 100 percent, your home may sell for a lower price due to lower demand.
The HoHM report stated that the Northeastern and Midwestern U.S. are currently experiencing the healthiest housing markets. Furthermore, 35 of the 40 largest MSA's have a positive LIHHM performance ranking.