The S&P/Case-Schiller Home Prices Indices, which is the leading measure of American home prices, has injected much needed exuberance into the housing markets. According to the report, home prices rose by 4.3% in 20 major cities in the 12 months ending October 2012, beating all analysts’ estimates.
Jed Kolko, Chief Economist at Trulia, believes that though the housing market fared very well in 2012, the recovery is just halfway back to normal. He adds that it has taken America three years from the worst day of the housing bust to achieve this recovery and that though there’s a long road ahead, Americans should be happy about whatever growth the market has achieved. His view is that there is tremendous investor interest in cheap homes for sale and is optimistic about the housing market in 2013, and beyond.
Cities like Phoenix, Detroit, Las Vegas, parts of Florida and Atlanta, which were hit hardest by the downturn, have experienced the biggest home price jumps. However, states that had strong housing fundamentals have missed the bust and then the boom. This implies that the home price increases are not speculative, but are backed by rebounding markets.
Another positive indicator comes from the NAR (National Association of Realtors). The organization has reported a continued improvement in the number of existing home sales. In November 2012, total existing home sales increased by a whopping 5.9% to 5.04 million homes from 4.76 million homes in October 2012. Sales were at their peak when compared to November 2009 existing home sales. Lawrence Yun, Chief Economist at NAR, says these trends reflect healthy market demand.
But, how will the fiscal cliff impact the housing demand? In the worst case scenario, falling off the cliff will result in tax hikes and dramatic cuts in government spending. These in turn will reduce the number of jobs, dent business confidence and naturally have a negative impact on housing demand. However, lawmakers have of late displayed urgency in resolving this thorny cliff and chances are that it may not impact the housing market.
Nick Timiraos of the Wall Street Journal is also optimistic of the housing market in 2013. He says that there are 3 factors that are driving people to invest in homes, and these are:
- The inventories of cheap homes for sale are down sharply because existing home sales have been continuously rising. That’s great news for home owners and bad news for home buyers.
- Rents and home prices are rising, and jobs are steadily increasing.
- Today’s housing market is full of qualified buyers because it’s not easy to get a mortgage.
Nick reckons that these factors have combined to spur investments in the housing market.
There is a black swan event to watch out for though – and that is the mortgage interest reduction. The mortgage interest reduction program costs the government $100 billion dollars every year. If the government is pushed into austerity mode then the interest reduction may be phased out and that event even will sure hit the housing markets hard.
That said, prices homes in cities that have a strong job growth, low vacancy rates and low foreclosure inventory will continue to hold steady or shoot upward. Areas to watch out for are San Francisco, Omaha, Louisville, and all the metros in Texas.
So, should we now assume that the worst is over and that the housing recovery has started? Well, we have indeed seen green shoots and it does seem like that 2013 could turn out to be another recovery year for the housing market. HUD homes for sale and other cheap homes for sale should be in demand.
So, is it time to uncork the bubbly? Well – we can do that, but at the same time we must learn from our past mistakes and analyze all numbers with caution and foresight. Cheers.