US Housing Market Seeing Growing Light at The End of The Tunnel

The end of the meltdown may be in sight, but the long road to recovery will likely be a long one. The last 24 months have been a rough ride for the US housing market. Thankfully, federal regulation and fiscal policy have been effective in easing the impact of the great recession. And now many experts are citing encouraging signs that are driven by the summer seasonality of the housing market but may also point to stability. Take existing home sales, for example, which have increased for the fifth consecutive month. Also on the rise are home prices, an all-important indicator of stability. In today’s battered market, rising home prices translate to a more balanced supply and demand picture.

By all indications, the market still represents opportunity. The $8,000 first-time buyer tax credit is set to expire at the end of November, but remains a powerful incentive. While first-time buyers are active, more repeat buyers are also taking advantage of favorable mortgage rates and better prices. These two broad groups of buyers are absorbing excess inventory. Mortgage rates, which now sit between 5-5.5% range, are slightly above the record low of 4.78%. Thus they are still very favorable and represent an historic opportunity for qualified potential buyers. The housing affordability index also remains very strong, as prices are adjusted to levels not seen since the mid-2000s.

The overall U.S. economic scene looks a bit brighter as GDP figures came in better than expected for the second quarter. The economy declined at a pace of just 1% over the past quarter, a great improvement from the first quarter’s decline of 6.4%. Economists point to this a potentially strong signal that the longest recession since World War II is finally beginning to wind down. Looking forward, the GDP is expected to return to positive territory in the third quarter and increase further in the fourth quarter.

An increasing trend is American consumers’ movement toward real savings. Last month alone, the U.S. savings rate hit 4.6%, a marked change from the negative to 0% savings rate for the entire decade. Economists consider a savings rate of 5% beneficial for the long-term viability of the economy and housing market. With increased savings, lower consumer spending could result in a slower recovery, but might lay the foundation for sustainable growth in the future. With limited prospects of new job growth, unemployment will continue to remain in focus as the best indicator of broader recovery.

HOME SALES IN THOUSANDS

June marked the five-month streak of increase in existing home sales. The $8,000 tax credit continued to be a huge boon to first-time buyers, who accounted for 29% of all transactions in June, unchanged from May. Repeat buyers, who often sell their current house to first-time buyers, continue to capitalize on historically high affordability conditions.

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-courtesy of This Month In Real Estate, by Keller Williams Research