Over the past few months, many economists have concluded that that the U.S. housing market has reached a turning point and is healing. This may sound hard to believe, since home prices are not shooting back up.
Indeed, prices aren't likely going to rise for a while. But this doesn’t mean the housing market isn't on the mend. Perhaps we're looking at the recovery all wrong, and this is according to Paul Dales at Capital Economics. In a report to clients recently, he said higher prices won't be the sign that tells us there's a real recovery under way. Rather, the recent pick-up in sales is what we should pay attention to.
After all, prices tend to be a lagging indicator. It could take six months for any improvements to show in the market, if not longer.
Even if the asking price is at the right level when the home is first listed, it may still take a few months to find a buyer and another month or so before the contract is closed. The selling price that is registered at the end of this process therefore relates to the market conditions somewhat earlier, when it was first listed.
And a series of home sales data released later this week is expected to show that home purchases climbed in February to their highest level in nearly two years, according to forecasts in a Bloomberg survey. Sales of new and previously-owned properties combined are expected to rise to an annual rate of 4.93 million – the strongest since May 2010, and up from 4.89 million in January.
The evidence reminds us that perhaps we should change our expectations of what a housing recovery might look like. The recovery we have been anticipating is defined more on the rate at which the glut of vacant properties comes off the market as opposed to any steady rise in prices.
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