Kristian Rouz – The US real estate sector gained a substantial boost in December as the US Federal Reserve moved to hike their base borrowing costs, resulting in feverish last-minute shopping for homes while credit was still at its cheapest.
The improvement in real estate is an encouraging development for the entire US economy, generally having slowed in Q4 amidst the junk bond crash and international headwinds, accompanied by the cheap oil capital slaughter.
According to data by National Association of Retailers (NAR), pre-owned housing sales surged an unprecedented 14.7% in December, propelling the yearly amount of units sold to 5.46 mln. The increase came about after November’s sluggishness, partially explained by the implementation of new mortgage regulations and subsequent delays in contracts being signed.
Previous estimates placed the yearly amount of existing home sales for 2015 at 5.2 mln units, but buyers hurried before 17 December when the Fed hiked its base interest rates, resulting in dearer credit. Pre-owned home prices increased amidst rife demands, somewhat easing concern of corporate profits being slashed by poor international performance of many US-based enterprises due to the dollar’s strength.
“The distortions in November suppressed sales, and as that got sorted out you saw a rebound,” Joshua Shapiro of the New York-based Maria Fiorini Ramirez Inc. said. “You average the two months and the truth is somewhere in between.”
Inventories in the real estate sector of the US economy decreased, supporting the acceleration trend. The upbeat sales figures are now expected to prop up construction industry, resulting in adjustment of prices, yet a more expensive credit now might hold back further sales this year.
The current environment is what the industry insiders call a ‘tight market’, eventually leading to acceleration in construction activities, supporting demand for hardware and materials
The average price of a pre-owned unit added 7.6% to $224,100 in December, while for the year the figure rose 6.7% to $224,400
“Overall, 2015 was a very good year and we're positioned for a strong spring market," Stephen Phillips of the Chicago-based Berkshire Hathaway Home Services said.
Now, even though the Federal Reserve has lifted the base borrowing costs from 0-0.25% to the current 0.25-0.5% in December, an average 30-year fixed mortgage rate in mid-January stood at 3.81%, its lowest since October. Financial market carnage hardly supports allegations of further base rate increases, while the banks are hoping to make up for their Wall Street losses with robust mortgage department performance.
Besides dovish Fed policies, labour market data firmly supports real estate well into 2016, as the total amount of jobs rose to its highest since 1998-1999 in December, providing a substantial boost to construction.
