As the good news for the housing market continues to accumulate more people are asking the question “Is this recovery for real?” As was noted in the most recent University of St Thomas Residential Real Estate Index Housing Report for August, median home prices in the Minneapolis / St. Paul market are not only continuing to increase, but they also continue to remain higher than last year’s median prices. The percentage of distressed sales has moderated and the average time it take to sell a house is decreasing.
(Link to the report http://www.stthomas.edu/business/centers/shenehon/research/default.html/)
These trends are being reflected in most of the major markets around the country. What makes this recovery period different from some of the false starts we have had in the past? What are the factors that are driving these trends? The article below was recently published in Knowledge@Wharton. It provides an interesting analysis of the state of the housing market today.
Published: September 26, 2012 in Knowledge@Wharton
On September 25, the Standard & Poor’s Case-Shiller Home Price Index showed a 1.2% price gain in July compared to a year earlier. Prices have risen for three consecutive months. The National Association of Realtors (NAR) reported on September 26 that sales of existing homes had risen by 9.3% in August, compared to a year earlier, and that the median price of existing homes sold was up 9.5% over the past year. (NAR and Case-Shiller use different methodologies.)
For the 12 months ended in July, sales of newly constructed homes were up about 25%, though the total was still only about half of the 700,000 units considered healthy. Experts are especially impressed that prices of the least-expensive third of homes lead the gains, going up a full 1% between June and July. Those homes had received the worst drubbing in the recent housing market collapse.
Is this the start of the long-awaited and elusive housing recovery — one that would bring a stronger economy overall? Or is the market just taunting us as it bumps along the bottom, perhaps only to plunge again?
“It’s for real. This is absolutely for real,” says Susan Wachter, professor of real estate at Wharton. The market, she says, is poised to enter a “virtuous cycle” where positive trends will spur more positive trends. “This market recovery will continue,” she says, predicting that rising prices will prod potential buyers to buy before prices go up more. That demand will nudge prices up, drawing in even more buyers.
“I have been optimistic about this market for six months or a year,” she adds, noting that the latest data supports an analysis of the market she offered in a recent paper co-authored with Mark Zandi, chief economist and co-founder of Moody’s Economy.com, and Moody’s analysts Celia Chen and Cris DeRitis. The paper, “Assessing the Housing Threat and the Appropriate Response,” was prepared for a recent Pew Charitable Trusts conference titled, “Strategies for Revitalizing the Housing Sector.”
A Sense That Things Are Getting Better
Though the average home is still worth 30% less than at the peak of the bubble in 2006, from January through July, prices rose 5.9%, the strongest performance in seven years.
Read the rest of the article: http://knowledge.wharton.upenn.edu/article.cfm?articleid=3085