Good News for Self-Storage Industry: Housing Market Shows Strength

June 25, 2013 0
Good News for Self-Storage Industry: Housing Market Shows Strength

The housing market has been red-hot in 2013—a good sign for the self-storage industry—but the pace of housing gains is expected to slow as the year rolls on.

Average home prices increased 11.6 percent and 12.1 percent for the 10- and 20-city composites for the 12 months ending in April, according to the latest S&P/Case-Shiller Home Price Index, released Tuesday.

From March to April, the 10- and 20-city composites rose 2.6 percent and 2.5 percent, respectively—their highest monthly gains in the history of the S&P/Case-Shiller. All of the cities tracked by Case-Shiller showed positive year-over-year returns for at least the fourth consecutive month.

The latest Federal Housing Finance Agency price report, also released Tuesday, showed more modest strength than the Case-Shiller figures, with prices up 0.7 percent from March to April.

Broad-Based Recovery
The health of the housing market is critical for the self-storage industry, which gains 65 percent to 70 percent of its business from the residential market. Housing indicators have been largely positive entering the spring and summer selling season, with home prices, home sales and homebuilding activity all showing solid improvement.

“The recovery is definitely broad-based,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices. “The two composites showed the largest year-over-year gains in seven years. Atlanta, Las Vegas, Phoenix and San Francisco posted year-over-year gains of over 20 percent in April. San Francisco was the highest, at 23.9 percent.”

Economists at Capital Economics predict a slower pace of growth by the fourth quarter of this year and say the growth pace will decline further in 2014. But the forecast doesn’t mean the still-fragile housing recovery is over.

Signed contracts for newly built homes were at a seasonally adjusted annual rate of 476,000 in May—2.1 percent above the revised April 2013 estimate of 466,000, according to data from the U.S. Census Bureau released Tuesday. Signed contracts were 29 percent above the year-ago rate.

home sales

Supply and Demand
The U.S. had just a 4.1-month supply of newly built homes in May, which is considered a tight market, according to Census Bureau data. Homebuilders have reported shortages in homebuilding materials such as lumber.

“Supply constraints are one of the barriers to a more robust recovery,” said David Crowe, chief economist at the National Association of Home Builders. “The shortages … are particularly concerning given that the current rate of construction is still far below what would be considered normal or necessary to meet underlying demand.”

On Monday, Lender Processing Services reported U.S. home prices rose 1.5 percent from March to April and jumped 8.1 percent from year-ago figures.

Not one of the 20 largest states or 40 largest metros tracked by Lender Processing Services saw negative month-over-month or year-over-year movement.

At $217,000, Lender Processing Services’ House Price Index is up 4.5 percent since the start of 2013, but still remains down 18.2 percent from its June 2006 peak of $265,000, according to Lender Processing Services.

California also led the top 20 states in terms of year-over-year growth, up 17.9 percent over March. San Francisco topped metro areas for the biggest home-price increase, up 3.6 percent from March, according to Lender Processing Services. San Francisco was followed by Sacramento, CA, and San Jose, CA, at 3 percent each; and the California areas of Napa, Stockton and Truckee, at 2.8 percent each. At the bottom of the heap was San Antonio, which posted a home-price increase of just 0.1 percent.

san-francisco-homes

Sales of Existing Homes
Existing-home sales improved in May from the previous month to a four-year high, while the median price continued to rise by double-digit rates from a year earlier, the National Association of Realtors reported recently.

Existing-home sales rose by 4.2 percent to a seasonally adjusted annual rate of 5.18 million in May from 4.97 million in April. Sales were 12.9 percent above the 4.59 million-unit pace a year ago and are at their highest level since November 2009, the Realtors group said.

Regionally, existing-home sales improved in all four areas, with the Midwest seeing the biggest monthly gain and the West seeing the biggest year-over-year gain.

“The level of existing-home sales continued to improve in May,” said Mark Vitner, senior economist with Wells Fargo Securities in Charlotte, NC. “However, the mix of sales to more traditional buyers is critical to a sustainable recovery.”

Some experts have expressed concern that investors have largely driven the housing recovery, but they have begun to back off because of rising home prices and fewer foreclosed homes, which generally sell at steep discounts.

Rising Mortgage Rates
Some analysts also fear that if mortgage rates climb above 4 percent, the housing market will suffer. An upward movement in rates is expected to curtail refinancing but shouldn’t affect buyers who are more affected by whether they are employed, have credit or have rising income, said Doug Duncan, chief economist at Fannie Mae.

Consumer confidence is up, as is household wealth, Duncan said in a recent Fannie Mae podcast. Household wealth is close to what it was before the housing crash, but consumers still are rebuilding their post-recession finances, Duncan said.

Still, housing appears solidly on the mend despite some concerns over things like mortgage rates and tight supply.

“Housing is still taking us on the right path,” Duncan said.