2012 Real Estate Update-Good News!

Real Estate Agent with Mary Crane Properties 9064676

When we pop the cork this New Year's Eve, we will look back on 2012 and remember it as the year when the housing market bounced back. Last Spring, we wrote that there were early signs of improvement, but we were unwilling to bet the ranch that the long-awaited upturn in residential construction had begun in earnest until we had seen additional evidence.

Now, a half-year later, the evidence continues to pile up. Residential construction has grown 44% since February 2011. Home prices, as depicted by both the Case-Shiller and the Radar Logic indices of housing prices, are up this year (ending June) 0.5% and 2.8%, respectively. In fact, the Case-Shiller index for June was almost exactly where it was in June, 2009.

And it's not just the Case-Shiller and Radar Logic indices that are showing improvement. The National Association of Realtors (NAR), Core Logic, Zillow, FHFA, and Lender Price Services have all turned positive for their year-over-year results.

When the Federal Reserve released its analysis of US Household Balance Sheets for the second quarter, they announced that Household Real Estate assets had grown $800 billion in the first half of 2012. The numbers above suggest that the rise in RE asset values will continue in Q3 and, coupled with the rebound in equities from Q2, should boost US Household Net Worth close to pre-recession highs. This improved "sense of wealth" will bolster the effect of the affordability of housing (low prices and low mortgage rates) and help propel the housing recovery forward.

Sales of new homes in August hit a 373,000 annual pace and were up 27.7% from last year's low. Even if the current sales rate is still miserably slow, you have to be somewhat impressed by the rebound. August was the 11th straight month of annual (year-over-year) sales gains. We haven't seen a run like that since 2005. We are still far behind the pace of just over a million homes sold annually between 2000 and 2006 and the more "normal pace of 800,000 per year between 1995 and 2000, but the improvement is welcome.

Housing starts in August grew 2.3% to a 750,000 annual pace from a 733,000 pace in July. Building permits (which precede new construction) slipped 1.0% from July's 6.7% spike to an 811,000 annual pace. Housing starts are now up 27% from last August, and permits are up 25% over the same period and sit a whopping 58% from their recession lows.

Sales of existing homes, which make up the bulk of the housing market, rose 7.8% in August to 4.8 million units (annualized) and stand 9.8% higher than a year ago. The median home price was essentially unchanged from August but, at $187,400, stands 9.5% higher than a year ago. Of those sales, 22% were classified as "distressed" sales (down from 31% a year ago), and it took 70 days to market the average sale (down from 92 days a year ago). One-third of houses sold were on the market for less than a month. As with new home sales, sales of existing home are growing, but are still behind the 6 million annual pace set between 1996 and the peak in 2005.

Still, some of the hardest hit states are rebounding nicely. California has its best August since 2006. An estimated 41,280 new and resale houses (and condos) sold in California, making it the best August for sales since 2006. August sales were up 4.5% from the 39,507 in July, and up 9.4% from 37,734 sales in August 2011. What's more, the median price paid for a home in California was $281,000 in August. This was unchanged from July and up 12.9% from the $249,000 median price in August 2011. The median price was the highest since September 2008, when it was $283,000 and August marked the sixth consecutive month in which the state's median sale price rose year-over-year. 20% of the existing home sales in August were properties that had been foreclosed on during the past year. That was down from 34.3% a year earlier. Last month's figure was the lowest for any month since foreclosure re-sales made up 18.3% of the resale market in November 2007.

The National Association of Home Builders' IMI (Improving Market Index) grew to 99 in September from 80 in August and includes 33 states. In order to show improvement, home sales have to have shown year-over-year gains for at least six months in a row.

The housing market has now suffered through almost seven years of the most wrenching adjustment imaginable, with prices and construction plunging over a four-year period and then consolidating over the past three years. That's plenty of time to work off a considerable amount of excess inventory and to re-price homes to appeal to new buyers.

There are still many millions of homeowners who are underwater, and millions of foreclosed properties yet to be sold, but the dynamics of the housing market are changing. In the past year or so, we've passed through an inflection point in which conditions have shifted from a buyer's market to a seller's market. Now, thanks to incredibly low mortgage rates, housing prices are more affordable than ever before. The psychology of the marginal buyer is slowly beginning to shift: can he or she snag that home for less if they continue to wait, or is it better to offer full price right now? There is already plenty of anecdotal evidence of bidding wars in some areas, and that could spread to more markets over the next year.

Home builders' stocks are making new post-recession highs. While they are still far below their prior highs, they are moving in the right direction. Lumber prices have doubled since their low in March 2009, further confirming that there is some genuine improvement in the construction sector.

The good news for the US economy is that, although the housing market will not provide the boost to GDP growth that it did in the early part of the century, it will help to solidify our economic base. The US economy has not entered into a serious decline when housing construction was growing (on a year-over-year basis).

Are you looking to buy or sell real estate? If so please visit me at www.MaryCraneProperties.com. Or contact me via email at Mary Crane Mary@MaryCraneProperties.com.

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Mary Crane




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