After a week of miserable news on the housing market, including last Friday’s report that show May new home sales fell 33% and existing home sales off 2%, we got some much needed good news on Tuesday which showed a modest gain in home prices nationwide. The S&P Case-Schiller Home Price Index of twenty major housing markets showed prices gained by nearly 1% in May over the prior month and 3.8% from the year earlier. Despite the recent gains, however, home prices still remain some 30% below their peak. Some economists fear that, without the stimulus provided by the now expired first-time homebuyer tax credit, the housing market recovery could lose momentum but others argue that the overall effect of the tax credit has been overblown.
You certainly can’t blame interest rates for any housing market woes as Freddie Mac reported last week that rates for thirty-year mortgages had reached an all-time low. And did I mention that was last week? On Tuesday the yield on the ten-year T-note fell below 3% for the first time since April of 2009 driving rates on thirty and fifteen-year mortgages down to 4.50% and 4.00% respectively. Global economic worries over a possible China slowdown and European debt have investors jittery and looking for a safe haven in the form of US Treasury debt - thus pushing down yields along with interest rates. The Federal Reserve's Open Market Committee also reaffirmed last week that it intended to keep interest rates exceptionally low for a considerable period of time.
The bigger picture for the housing market remains this. Despite the tax credit hangover the market experienced in May most analysts agree that pent up demand for housing will ultimately stabilize the market. This is supported by a report from the Mortgage Banker's Association last week that showed most banks across the country were adding mortgage staff to deal with a possible surge in home financing over the next year. Rates remain extremely low and, though not rising as much or as fast as many would like, home prices are indeed improving. As long as the US economic recovery can weather exterior threats from Europe and China I expect the housing market to continue to improve over the second half of 2010 and foresee significant gains in 2011.