Analysts at BMO Capital Markets note that the US housing demand fundamentals ended 2016 on a strong note, reflecting rising household incomes (owing to both job and wage growth), banks continuing to ease lending standards, and consumer confidence hitting multiyear highs.
Key Quotes
“Mortgage interest rates continued to move up; they averaged 4.20% in December… the highest in more than 2½ years (according to Freddie Mac’s survey).”
“However, affordability still remains historically attractive, so higher borrowing costs can be absorbed without denting demand. In December, homebuilders reported the most robust activity levels (in terms of present and prospective sales) since the frothy days of the housing bubble (July 2005). This should nearly offset expected payback from November’s 5.2% surge in new home sales, resulting in a 0.5% drop in December to 589,000 annualized units, which is still the second highest pace in nearly nine years. Meanwhile, pending home sales slid 2.5% in November to a 10-month low, also portending a December setback in existing home sales. We look for them to slip 0.7% to 5.57 million units, which, again, is still the second highest existing sales pace in almost a decade. The solid demand fundamentals point to new multiyear highs on both fronts in 2017.”
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