Is Housing Really Recovering?

07/07/2014 12:01 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

The recent data on Pending Home Sales has MoneyShow's Jim Jubak focusing on the outlook for the housing market and whether it is actually recovering.

On June 30, we got a pending home sale number for May that was really good news for the housing market and the economy as a whole. We got a jump in pending sales. Now, these are homes that where the contract has been signed but the sale has not yet been quite completed, so it's an indicator of future sales if you will. It went up 6.1% in May. That comes after a very anemic performance in April where the index that tracks the number of pending sales went up just 0.5%. That raised fears that the housing recovery was going to stall. This makes people fear the housing recovery has got more to go and that is the big question here, which this is a strong number of what's ahead. Is the housing market going to continue on this path? Are we going to see a retreat? It looks like that this number was being driven by somewhat lower mortgage rates for the immediate period, a somewhat looser market for people getting mortgages, and not a whole lot of price movement, but we are at a point where increases in home prices have a pretty big effect on sales.

The one thing that's sort of out there that looks like it might be interesting, and maybe this is a longer-term question, is that we're starting to see some evidence that millennials, that huge generation, this is 85,000,000 Americans that were very, very heavily affected by the Great Recession and many of them didn't move out of their parent's houses, or moved back into their parent's houses, so we've got a big backlog of people who are getting close to the age, which is around 30, early 30s, which is the big age for most generations to start new households, we've got a lot of pent-up demand here. If those people start to move into the housing market, either for apartments or to buy their own houses, that gives us a lot of fuel going forward. There is some suggestion that this is maybe happening. Barclay's cranked through the 2013 census data and found that for 2013 really for the first time since 2005 you had a net increase in household formation by this generation. Whether this is going to follow through or not we don't know. You've got housing studies that suggest we're in for a period of 10, 15 years where this pent-up demand drives the housing market but we yet haven't quite seen it. We're getting some good signs from homebuilders, like KB Homes (KBH) or DR Horton (DHI), who have a heavier weighting toward the starter house market, the lower priced $125,000, $150,000 house, that they're seeing slightly better fundamentals, a little better demand than people at the luxury ends of the market, so that points to the direction that suggests that maybe the Barclay's number is really significant, but we won't know for a while. It does mean that somewhere out there there's potentially good news that will keep this housing recovery going for a while.

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