US Housing Market – Real Recovery?

rexfeatures_1877615a.jpgSource of picture: Rex Features


Today, we are running a guest blog post from Brian Spero,who is a financial contributor for the online resource, Money Crashers Personal Finance, where he writes about economic policy, real estate, and home improvement. 

As the chemical industry keeps a watchful eye out for tangible proof of an improving economy, recent reports on the US housing recovery have been heavily scrutinised.

While it’s welcome news that prices are on the rise and the economy seems to be stabilising, many remain sceptical.

There has been no shortage of enthusiasm for the housing market’s apparent recent rebound, buoyed by reports that prices are up 4% to 5% over the last year.

Many agree the biggest factor behind the turnaround has been enduring low mortgage rates, and with percentages projected to stay down for the foreseeable future, growth is expected to continue well through 2013.

Freddie Mac recently released information suggesting that prices could rise as much as 10% over the next 12 months, while experience dictates that when interest rates finally do start to inflate, it will drive real estate sales even further, as would-be homeowners scramble to capitalise on historic lows.

Another prominent factor has been the influence of cash investment purchases. Those who would throw cold water on the positive signs remind us that as prices rise steadily investment will diminish, leaving the real estate market stagnant once again.

A clue in determining if this recovery truly has traction is if the percentage of cash sales decreases from its current level of 20% to around 10%, which would indicate a sustaining element that individuals are purchasing.

While mortgage applications have been up in recent months, nearly a third of those currently paying mortgages owe more than their homes are worth.

Many have scoffed at the relatively small rise in prices, pointing to how much more ground there is to make up before housing prices approach their peak in 2005, but it’s important to recall the volatile factors that created the unrealistic boom.

The simple fact is that when people’s houses are worth more, their confidence as consumers goes up, creating a domino effect that serves to fuel economic growth.

It’s not just the housing market that’s on the upswing. Reports reveal related industries such as construction, lumber, and architecture are also experiencing a bump. The buying, selling, and building of homes has a powerful influence on construction, retail, and financial services. This creates jobs and generates profits as people spend on everything from moving and storage, to furniture, appliances, and landscaping.

As the staunchest naysayers fairly point to lingering concerns over job growth, high unemployment, and unresolved questions relating to the national debt, the momentum (at least for the moment) is in recovery’s favor.

Will the housing market continues to rebound, taking the greater economy with it, or will it level off – or worse yet, begin to flounder?

There is currently real reason for optimism. Foreclosures are down, which means a decrease in supply that will result in not only rising prices, but also a further boost to the construction industry. Plus, according to a report by CNBC, about one-third of U.S. homeowners own their homes outright without mortgages, which serves to balance out the discouraging data on mortgage debt.

Things are better than last year, and according to sources ranging from Forbes to Fannie Mae, we can expect another year of growth in 2013.

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