REPOST: Housing Market Blows Hot and Cold

 Is the endless snow affecting the housing market? This article from Bloomberg View explains the seasonal trends in housing sales.

THIS ONE HAS GREAT CURB APPEAL. | Image Source: bloombergview.com

The northern third of the U.S. is locked in a straitjacket of snow, ice and bleak weather better suited to staying at home than going out and hunting for a new one. I can almost hear it now: Remember how awful last year’s polar vortex was for the fledgling housing-market recovery? Looks like we're in for more of the same this year.

Except that this construct reflects a significant misunderstanding about the practical nature of housing sales. Homebuyers who decide not to view property during a bout of cold weather don't drop out of the market. They just delay their search until the weather becomes more agreeable, usually in a few weeks or months at most.

Consider the chart below, which uses the average temperature of the 48 contiguous states from the National Oceanic and Atmospheric Administration and the number of non-seasonally adjusted existing home sales from the National Association of Realtors. Notice anything? The seasonal trends are remarkably in sync: Housing sales rise in warm weather and fall in cold weather no matter the availability of credit, what direction interest rates are moving or the extent of wage and job growth.

Image Source: bloombergview.com

The reality is that housing sales are seasonal -- always have been, always will be.

Here's where things can get confusing, though.

Most national housing studies, such as those by the NAR, emphasize a month-over-month analysis of seasonally adjusted numbers. Throw in a federal housing-stimulus plan or a change in housing tax policy and those seasonal adjustments distort the market trends.

Other reports, such those by S&P/Case Shiller and CoreLogic, are based on a methodology that essentially strips away seasonal trends. That's a key reason those reports feel out of step with actual market patterns. 

Over the years I’ve had conversations with a number of well-respected economists about the virtues of their seasonal-adjustment methodologies. Yet consumers and real-estate brokers have a very different perspective and see the housing market as a series of “waves.” That probably is a more accurate representation of what's going on.

And that’s pretty cool.

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Continued improvement of the housing market seen in 2015

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2014 proved to be a good year for the housing market, with the steady path to recovery opening. The activity in the market is considered to be the best it has ever been since the crash almost a decade ago and the positive trend is expected to continue well into 2015. With a return to a balanced state, the housing market is now expected to benefit both buyers and sellers.

To start, experts expect a stronger job market, continued economic growth, and increasing home prices to improve existing home sales by 7.4 percent. More and better paying jobs should also affect the millennials, especially the older ones who are now getting married and starting families. They are now expected to join the market and make up for a significant portion of new home purchases in the next five years.

Image Source: mortgagecalculator.org

However, millennials could also encounter some obstacles to home ownership. Financing is still difficult to obtain with the strict mortgage qualifications. This could prevent many millennials from buying the house that they want. Additionally, mortgage rates are still rising.

Image Source: bndcreations.ws

Meanwhile, builders focused more on multifamily homes in 2014. This year, they are expected to build more single-family homes. Experts predict healthy growth in single-family starts, which will only be limited by the supply of labor and materials. The foreclosure crisis is also expected to end this year as the number of foreclosures should return to a normal level. These factors could significantly normalize the housing market.

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