The U.S. is finally moving beyond bold, negative predictions from “so called experts” concerning the future housing market. The numbers are convincing.
Six years after the housing bubble imploded, most indexes reflecting housing prices are moving up. “We finally saw some rising home prices,” S&P’s David Blitzer said a few weeks ago when he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.
Over 9% more existing homes sold in May of this year than in May a year ago. Many of these homes were purchased by investors who plan to rent them for now and sell them later. This is a tell tale sign of the rebounding real estate market. Surprisingly, the inventory of existing homes and condos for sale has fallen to normal levels of six months back, despite all of the lender-owned foreclosed homes. The percentage of vacant homes is at its lowest level since 2006.
Reduced inventory of unsold homes is paramount, says Mark Fleming, chief economist at CoreLogic, a housing data-analysis firm. “For the past couple of years, house prices have risen in the spring and then slumped; the declining supply of houses for sale is reason to believe that won’t happen again this year”, says Fleming.
Builders in the U.S. began construction on 26% more single-family homes in May of this year than May of 2011. The inventory of unsold, newly built homes is back to where it was in 2005. In each of the past four quarters, housing construction has contributed to economic growth. In the first quarter of this year, it accounted for 0.4 percentage points of the scant 1.9% growth rate.
“Even with the overall economy slowing,” Wells Fargo Securities economists said, cautiously, in a note to clients, “the budding recovery in the housing market appears to be gradually gaining momentum.
The U.S. housing market is still a long way from vital. The Federal Reserve’s efforts to infuse the market by reducing mortgage rates to unprecedented lows: 3.62% for a 30-year loan, according to Freddie Mac’s latest survey. Residential housing stats, though up, still remain 60% below pre-bubble pace set in 2002. The equiyty Americans have in their homes is approximately $2 trillion; 25%, less than it was in 2002 and half what it was at the apex. More than one in every four U.S. mortgagees have loans larger than the value of their home. The silver lining is that rising home prices are reducing this percentage slowly.
Still, the upturn in housing is something positive to grab hold of in these difficult times. There has not been much to smile about when discussing the economy, in particular,the housing market. One of, if not “the” biggest causes of economic weakness for the U.S. has been the housing market. It has now—moved to the plus side. “A little tail wind is a lot better than a headwind,” says economist Chip Case, the “Case” in Case-Shiller.
Starting now, the housing is highly unlikely to hinder the U.S. economy in the immediate future. Instead, it will reflect strength and solidarity in the overall economy. “The more jobs, the more confident Americans are about keeping their jobs, the more they are willing to buy houses”. “Manufacturing had led growth and construction had lagged,” JPMorgan Chase economists said last week.”Now the roles are reversed: Manufacturing growth has slowed as private construction comes to life.”
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