Tuesday, September 04, 2012
The United States’ Housing Market Shows Improvement
FairfaxNews: Mortgage Rates Creep Higher, Home Sales Rise
The United States’ housing market has been in a decline since the housing bubble burst in 2007, sending property values in a drastic downward spiral. However, this past week, the National Association of Realtors announced that the sales of existing homes in the month of July increased 10.4% compared to July of last year, while sales of new homes in the month of July increased 25.3% compared to July of last year. Housing prices also rose across the country, as the median price of an existing home jumped to $187,300, or 9.4% over this time last year.
Several factors explain the turn around. First, employment in the U.S. grew by 163,000 jobs, or 0.12% in the month of July. Job growth contributes to an increase in home sales as Americans have more discretionary income—money remaining after a consumer pays off his or her expenses. Americans also feel more secure about their finances, which makes them more likely to make a long-term investment in a home. Second, the current low interest rates allow buyers to purchase a home at a more favorable price over time because they do not have to pay as much interest on their mortgage. Third is the limited supply of existing homes for sale. Currently, there are 2.4 million homes for sale, which is a 24% drop over this time last year. The main reason for such a low number is that homeowners are reluctant to sell their homes at current prices (the median price of an existing home in July 2012 was $187,300), which are far below the pre-recession levels (the median price of an existing home in July 2006 was $238,100). Due to the low number of existing homes for sale, the prices of homes increased this past month as demand exceeded supply. The low supply also contributed to an increase in the construction of new homes—a 21.5% increase in July over the previous year—to compensate for the low number of existing homes for sale.
Although the United States’ housing market showed improvement this past month, the market still has a long way to go to reach pre-recession levels. Currently, home sales are 40% below pre-bubble-burst levels. Moreover, economists, such as the National Association of Realtors’ chief economist Lawrence Yun, predict that home sales for 2012 will be about 4.6 million. This prediction is approximately 1 million sales below the healthy annual pace. Thus, although the United States’ housing market showed improvement, the market is still far from achieving a full recovery.