Tags: naroff | housing | market | comeback

Housing Market Making a Comeback as Home Prices Rise

Tuesday, 24 July 2012 02:09 PM

INDICATOR: May Federal Housing Finance Agency (FHFA) House Price Index/June Zillow Home Value Index

KEY DATA: FHFA: Up 0.8 percent; Year-Over-Year: Up 3.7 percent/Zillow: Up 0.7 percent; Year-Over-Year: Up 0.2 percent

IN A NUTSHELL: “Home prices are turning upward, another clear indication that the housing market is in the midst of a growing comeback.”

WHAT IT MEANS: Finally, the weakest link is starting to take its place as the leader of the recovery. Housing was usually the first stage in past recoveries and the huge collapse of the housing market is one of the major reasons we are still talking about a soft economy. But that is changing. We have seen housing starts and sales improve and that has turned around prices.

The FHFA’s House Price Index rose solidly in May, the third consecutive robust increase and fourth consecutive rise this year. Prices rose across the nation except for the oil-patch states, where they decreased. That decline looks like a temporary aberration, as over the year, prices in that part of the country were up more than in many other regions. The biggest gains since May 2011 were posted in the Rocky Mountain States, the West Coast and the Midwest. New England and the Middle Atlantic states have had limited price gains over the year, but are beginning to show some signs of life.

The June Zillow Home Value Index report adds fuel to the belief that the housing cost increases are real. Prices rose solidly in June and for the first time in five years, the index posted an increase from the previous year. More than 50 percent of the 167 metro areas covered showed gains from the year before. Sharply rising rents should also push more people into buying and induce investors to continue to plow money into distressed homes that they can rent out.

MARKETS AND FED POLICY IMPLICATIONS: No, the housing market is not healthy yet. But it is moving in that direction and conditions seem to be improving at an accelerating pace. The key has always been prices. The declining price period caused potential buyers to wait, while it reduced equity and the ability of homeowners to move.

As prices rise, fence sitters will have to start seriously making a move. Investors who are looking to rent will likely be even more interested, which is important since foreclosures are expected to increase now that the moratorium is over. That new supply should be grabbed quickly. So, while equity and bond investors may be focused on Spain, which is closing in on a full-blown bailout situation, here in the United States, the economy continues to heal.

Indeed, if the Washington Theater of the Totally and Completely Absurd could only ring down its curtain, business and consumer confidence might actually improve. That would lead to more spending, hiring and maybe possibly even solid economic growth.

But putting the nation ahead of ideology and politics is not likely to occur before the election and who knows if it will happen afterward. So we will worry about fiscal cliffs, European financial meltdowns and a Chinese slowdown while dismissing domestic economic news, unless it fits a political point of view, of course.

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Tuesday, 24 July 2012 02:09 PM
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