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Housing Market Trends through 2013

September 30, 2013

While we expect current housing market trends to continue through the balance of 2013, there are some important economic factors that should be watched and taken into consideration.


30 year fixed mortgage rates have increased slightly in the past few months to over 4%, however they are still very attractive and not far off historic lows. Industry experts are mixed in their projections of rates for the balance of 2013, with some projecting rates dipping down to 3.9% (National Association of REALTORS®), while others are forecasting rates to end closer to 4.7% (Fannie Mae). Almost all agree that in the long term rates will rise. If rates rise faster than predicted, it could serve to dampen the purchasing power of borrowers, however a window of opportunity still exists for buyers to capitalize on current rates.


Many parts of Arizona are currently facing a shortage of housing inventory, with buyer demand exceeding supply. Contributing factors include a diminishing supply of distressed properties and a lack of new construction. For a number of reasons, home builders can have a longer lag time to react to shifting market conditions. Downward pricing pressures and reduced buyer demand held builders at bay during the housing bust. With housing now rebounding in Arizona, we are seeing signs of life in new construction however those levels are still well below their peak. A severe housing shortage may drive higher prices, however it may also leave buyers struggling to find a home to purchase. Increases in supply may come from further production of new construction homes and/or more existing homeowners considering selling as prices rise.


The Brookings Institute Mountain Monitor for June 2013 reported "The unemployment rate averaged 7.7 percent across the nation's 100 largest metropolitan areas in the first quarter of 2013. Unemployment ran 7.0 percent or below in Phoenix and Tucson." The report also went on to say "Phoenix had a 0.6 percent growth in employment over the prior quarter, beating the national average of 0.4 percent. Tucson's employment recovery advanced by only 0.2 percent, by contrast. "The health of the housing market has a direct tie to employment." When people have jobs they have the income, stability and ability to purchase homes. Employment gains have been only nominal in this economic recovery so any stalls in positive momentum may have a negative impact on housing. If job growth continues, that will help fuel further housing recovery.


The Conference Board Consumer Confidence Index®, which had declined in July, increased slightly in August. The Index now stands at 81.5 (1985=100), up from 81.0 in July. Says Lynn Franco, Director of Economic Indicators at The Conference Board: "Consumer Confidence increased slightly in August, a result of improving short-term expectations. Consumers were moderately more upbeat about business, job and earning prospects. In fact, income expectations, which had declined sharply earlier this year with the payroll tax hike, have rebounded to their highest level in two and a half years. Consumers' assessment of current business and labor market conditions, on the other hand, was somewhat less favorable than last month." Consumer confidence is cautiously optimistic and should be watched closely. People buy houses when they are confident about the economy and tend to exhibit nervousness when they are not. Rising home prices and a strong stock market may have the effect of boosting the equity positions of consumers, thus increasing consumer confidence.

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