Lost amid all the doom and gloom of low GDP numbers, high unemployment, the ongoing European sovereign debt crisis and the looming potential of a plunge over the Fiscal Cliff is an improvement in the area of the economy from which originated the current economic malaise: the domestic housing market. Various indicators are trending in the same direction and at approximately the same pace: upward, but slowly. The improvement is broad based, however, which is encouraging, as signs of a return to health of the real estate market are appearing across the country.
Among the positive indicators are included the following:
- Home prices have increased up over their levels of a year ago, according to the S&P Case-Shiller Home Price Index, by a margin of 1.2%. Case-Shiller tracks numbers in a national index as well as in a metro index consisting of twenty of the nation’s largest cities; the latter is showing improvement as well as Atlanta, Detroit and Miami, all among the hardest hit cities during the real estate crisis, showed month to month improvement from May to June. Of all the cities that comprise the index, only Charlotte and Dallas showed a slowdown in their annual price appreciation rates.
- The number of existing home sales increased in July from the prior month. Even more encouraging, however, was that volume was up 10% year to year.
- Turnover of inventory has also increased, dramatically, as homes are now typically on the market for 69 days, down 29.6% from a year ago.
- Sales of new homes were of mixed results, as volume increased, while prices decreased. Year to year sales are up a startling 25.3%, but the corresponding price drop of 2.5% does dampen enthusiasm somewhat. The inventory of new homes did drop to a record low of 142,000 in July, which is difficult to view as anything other than strongly positive.
The recovery of the housing market is crucial to the recovery of the national economy. The housing crash was the epicenter of our current financial travails with the low volume of housing sales combined with low sales prices representing a persistent drag on the U.S. economy. Some market observers are drawing optimism from recent numbers and are offering the opinion that the housing market is now contributing to, not detracting from, our national economic output. "We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change," said David Blitzer, a spokesman for S&P, in a statement. "The market may have finally turned around." There are a number of factors positively influencing the trend of the recent data, with two being particularly important: reduced inventory leading to competitive bids and historically low interest rates incentivizing buyers, with the caveat that stringent lending laws often lead to those most in need of access to these rates not being able to qualify.
The road forward is not anticipated to be without its obstacles however, as typically seasonal factors begin to take a part as colder weather generally leads to a declining volume of sales. Additionally you have the wide combination of uncertainties including the presidential election, the Fiscal Cliff and continued high unemployment to name just a few. Some economists caution against relying on data from a national housing market that many don’t believe exists as real estate markets are Balkanized by their widely disparate data. As Zillow Chief Economist Stan Humphries opines: "We're still a few years away from a normal housing market"
Still, doubters aside, the housing market has quietly been a rare bright spot in our national economy for several months now and is at or close to adding to our economic output for the first time since 2005. Indicators consistently point to a rebounding housing market, most experts agree, including David Crowe, chief economist for the National Association of Home Builders, who said, "The fact that we continue to see a strong core of metros showing up on the improving list each month adds to the growing evidence that the emerging housing recovery has a solid foundation on which to build as housing returns to its traditional role of driving economic growth." If Mr. Crowe is indeed correct this is the most welcome economic data this country has seen in a long series of lean, hard years.