Housing Recovery Continues To Take Shape Despite Superstorm Sandy And Looming Fiscal Cliff

Morgan Brennan, Forbes Staff

Business 11/19/2012 @ 12:43PM

A nascent recovery in housing continues to make modest gains, despite a devastating storm and the looming fiscal cliff.  Two market indicators –completed sales of resold homes and home builder sentiment — have risen in recent weeks, bolstering economists’ assertions that the sector has bottomed and begun a painfully slow rebound.

Nationally, U.S. existing-home sales jumped 2.1% in October from a month earlier to a seasonally adjusted rate of 4.79 million home sales annually, according to the National Association of Realtors. It represents a nearly 11% increase in sales activity from a year earlier. Existing home sales entail completed sales of single-family homes, condos, townhomes and co-ops.

The national uptick comes despite the devastating effects of Superstorm Sandy, which pummeled the Eastern coast of the U.S. on October 29.  Locally, however, the natural disaster caused a drop in sales in the Northeast as power outages delayed transactions and some lenders demanded new inspections post-storm. Lawrence Yun, chief economist of NAR, has projected that home sales in the region will continue to slow in November and December due to delays, likely rebounding in the early months of 2013. The anticipated temporary plunge could  weigh down the national sales average in coming months as well.

Nonetheless, “Home sales continue to trend up and most October transactions were completed by the time the storm hit, but the growing demand with limited inventory is pressuring home prices in much of the country,” said Yun in a statement.  At the current sales pace, the country’s inventory supply would be exhausted in 5.4 months. A six-month pace is generally considered healthy by economists.
October’s national median sales price rose to $178, 600. It represents an 11% increase from October 2011 and marks the eighth straight month of year-over-year increases, an upward trend last witnessed during the housing peak (from October 2005 to May 2006).  Over the past year, those gains have translated into $760 billion growth in home equity. NAR projects that another $1 trillion will manifest in increased equity 2013.

Growing demand and limited inventory is propping up another key aspect of the housing market as well: builder confidence. Home builder sentiment rose for the seventh straight month in November, hitting its highest level in six and a half years, according to the National Association of Home Builders.  The NAHB/Wells Fargo Housing Market index (HMI) rose to 46 from 41 month-over-month, as home builders continued to feel more optimistic about sales conditions for new single-family homes.

Still, the index remains below the 50 mark, indicating that more builders continue to view sales conditions as poor versus ones that view them as favorable.

“We have certainly made substantial progress since this time last year, when the HMI stood at 19,” says David Crowe. chief economist of NAHB, in a statement. “At this point, difficult appraisals and tight lending conditions for builders and buyers remain limiting factors for the burgeoning housing recovery, along with shortages of buildable lots that have begun popping up in certain markets.”