For the past two weeks we have assessed the reasons
that home prices are rising. Without rehashing this data, suffice it to say
that home prices are rising because the real estate market is finally
recovering from a horrible slump. Many analysts are now debating whether
recently rising interest rates may put a halt to the real estate recovery and
the stock market rally as well. In our mind there is a direct relationship
between rising home prices and higher rates. Why? For the past three plus
years, we have seen a tepid economic recovery from a very deep recession. If
one looks at the numbers today, the recovery still does not look strong. The
economy has grown at an average of just over 1.0% for the past two quarters.
That is not exactly robust numbers. The difference is that today the economy is
being supported by positive growth from the real estate markets.
Real estate is a big part of the economy that fuels
important behaviors such as consumer spending. When someone buys a house, they
also tend to purchase furniture and undertake home improvements. We believe the
markets are thinking about the future, not the past two quarters. Two years ago
when economic growth slowed down, there was significant talk of another
recession. Today, you don't see the same level of fear. Home prices are up
because the real estate markets are recovering. Rates are up because the
economic recovery is on more sound footing with a real estate recovery
supporting the upturn. The jobs report released on Friday was definitely
indicative of this better news. Not only was the 195,000 jobs added more than
forecast, the previous two months were revised higher by 70,000 jobs and hourly
earnings had a solid advance as well.
New home sales continue to climb, rising to 476,000
completed transactions in May, according to government data. When evaluating
single-family homes specifically, sales inched up 2.1% in May, above the
revised April rate of 466,000 units. Last month’s sales are 29% above the
May 2012 estimate of 369,000 sales, the Census Bureau and the Department of
Housing and Urban Development noted in a report released June
25. "The housing market is without question surging. Last week's
report on existing home sales was very strong as is today's report for new home
sales which came in at a stronger-than-expected annual rate of 476,000 in
May," noted analysts at Econoday. At the end of May, the number of new
homes for sale increased to 161,000 units, compared to 156,000 units in April.
This represents a 4.1-month supply of homes at today’s sales pace, up slightly
from April’s 4-month supply. Supply is moving higher as builders pick up the
pace, noted analysts at Econoday. "Rising supply will help boost sales in
the months ahead." They added, "The housing sector is now the
bread-and-butter strength of the economy." Also pending home sales rose in
May to the highest level since late 2006, implying a possible spark as rates
began to rise, according to the National Association of Realtors®. The Pending
Home Sales Index, a forward-looking indicator based on contract signings,
increased 6.7 percent to 112.3 in May from a downwardly revised 105.2 in April,
and is 12.1 percent above May 2012 when it was 100.2. Contract activity is at
its strongest pace since December 2006, when it reached 112.8. Also, pending
sales have been above year-ago levels for the past 25 months. Lawrence Yun, NAR
chief economist, said there may be a fence-jumping effect. “Even with
limited choices, it appears some of the rise in contract signings could be from
buyers wanting to take advantage of current affordability conditions before
rates move higher,” he said. Source: HousingWire and NAR
Inventories of for-sale homes are increasing as more
owners see rising home prices and faster sales as a reason to try to sell now,
according to industry reports. In April, the number of listings was higher than
the level of homes that were under contract in that month, according to a study
by the real estate brokerage ZipRealty, which measured listings in 24 major
metro markets. “It’s less of an indication of buyer momentum flagging and more
of seller momentum picking up, finally,” says Lanny Baker, the company’s chief
executive. The reports find that homes are selling faster—on average, within 32
days of being listed. In April 2012, that average stood at 48 days for homes to
sell. “A market in which the sale prices are happening very close to the
list prices, a market in which the list prices seem to be moving sequentially
higher, and a market in which any of those houses are selling speedily is one
that is bringing sellers back,” Baker says. “That makes it feel to a seller
that this isn’t going to be a long passive despair that I tried three years
ago.” Source: The Wall Street Journal
A rebound in homebuilding after a six-year slump should
generate as many as 500,000 jobs in 2013 and 700,000 in 2014 including related
services, estimates Russell Price, a senior economist at Ameriprise Financial
Inc. in Detroit and the top forecaster of employment for the past two years,
according to data compiled by Bloomberg. "Housing is like a coiled
spring" driven by "a lot of pent-up demand," said Glenn Hubbard,
dean of Columbia University's business school in New York, who was chairman of
the White House Council of Economic Advisers under President George W. Bush.
"It is a real source of strength in the economy — from construction jobs
and all the vendors who play into it." About half the jobs created by
homebuilding are outside of construction, estimates the National Association of
Home Builders, a Washington-based trade group. More than three jobs are created
for each single-family home built, including related work, a 2008 study by the
group estimates. "A revival in new home construction will have a huge
stimulative effect on the larger economy," said Brad Hunter, Palm Beach
Gardens, Fla.-based chief economist for housing research firm Metrostudy.
"When home construction goes up, so does demand for furniture, tile,
lumber, concrete, draperies, paint, and appliances of all sorts." The
increase in construction jobs so far has lagged new activity because workers
have had their hours increased, said David Crowe, NAHB chief economist in
Washington. Weekly hours have risen to an average of 36.8 the past year, the
highest since December 2006. "We have seen increasing hours, but there is
a limit to that," he said. "I'm expecting to see a more direct
correlation between increases in housing starts and increases in construction
employment." Source: Bloomberg
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