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Each month, we use IBM Watson’s tools to assess the sentiment of hundreds of articles about the US housing market. Overseeing that process is Tides analyst Dan Allen. Insightful and observant, he follows the media and helps us keep a pulse on what’s going on out there. Here are his observations on the top housing media trends in July 2017:
July Housing News Summary
As house prices reach record highs and rents follow, housing affordability has become a big conversation in housing news. However, many measures of housing affordability show that housing is actually rather affordable by historical standards. Freddie Mac’s Housing Affordability Index remains near record highs despite recent house price increases. Freddie Mac has released a report addressing the gap between affordability perceptions and the data.
To explain why housing seems so unaffordable, they cite factors that are not captured by their index, such as credit availability. The report also points out the slim inventory of homes for sale that often lead to cash offers or sale prices above list prices. Increased household debt such as student loans also cuts into potential homebuyers’ budgets.
It’s also worth noting that the Freddie Mac Housing Affordability Index compares national house prices with national incomes and this does not capture regional differences in affordability. For example, while the national average house-price-to-income ratio is 4.0, in Hawaii the median house price is a whopping 8.6 times higher than the median household income. In the hottest markets, low affordability combined with a rapid sales pace and sale prices above list make buying a home significantly more difficult.
However, home prices don’t look likely to ease anytime soon. Homebuilder sentiment fell slightly in last month’s survey. Homebuilders have long expressed concerns about shortages of buildable lots and skilled labor. Now, softwood lumber prices are rising and shortages have been reported. New tariffs on Canadian lumber imports are attributed to the price increase and wildfires in British Columbia are credited with exacerbating the situation. Higher lumber prices and increased shortages will apply upward pressure on home prices, downward pressure on homebuilder profits and constrain construction activity.
Investment’s Northern Star
Canada made headlines in July’s housing news for another reason, as well: Canadian investors have significantly increased their activity in the U.S. housing market compared to last year. Canadian transactions totaled $19 billion this year, more than double last year’s total. National Association of Realtors’ Lawrence Yun chalks up some of the increase to home prices in other countries—including Canada—outpacing U.S. home price increases and thus making U.S. housing relatively affordable. Despite Canada’s surge in investment, China remains the country with the greatest foreign sales activity in U.S. residential.
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