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The housing market recovery is for real this time.
Coming after the housing market crash, the recovery is welcome news to those in the industry - and bodes well for the economy as a whole.
"It almost seems too good to be true," Lawrence Yun, the chief economist at the National Association of Realtors, told Money Morning.
The latest confirmation of the market's rebound is the new survey of home builder confidence from Wells Fargo Bank and the National Association of Home Builders, which climbed to its highest level since 2006.
And housing starts were up 6.8% in May and 28.1% year to date, the U.S. Census Bureau said.
Why The Housing Market is On the Rebound
Other reasons that the recovery's the real deal abound. Here are seven of them:
- Prices are rising, but not enough to price buyers out of the market and not nearly to reach bubble levels.
Celia Chen, an analyst with Moody's Analytics, noted in an interview with Money Morning that home prices, which climbed 12.1% in April year over year, still remain 26% below peak bubble levels.
"What I see is a market that is on a healthy, sustainable growth path," Chen says.
She's not the only one.
"Even with the recent price increases, home prices nationally remain undervalued relative to fundamentals and much lower than in the last bubble," Jed Kolko, chief economist at the real estate website Trulia, said on his blog. "That's why today's prices are actually still a rebound, not a bubble."
- Interest rates on 30-year fixed mortgages, now at about 4%, remain near historic lows, even with their recent uptick.
And a moderate increase, which many experts expect, wouldn't be enough to drive buyers away. In fact, David Zugheri, co-founder and executive vice president of Houston-based Envoy Mortgage, told Money Morning the prospect of rising rates may prompt some to purchase homes because they anticipate the increase.
"With those who have been just kind of thinking about buying and then they're watching rates go down, this [recent increase] has just been a kind of shock to the system, so to speak," Zugheri said. "They're looking and saying, 'Well rates are not going to go down to zero. Maybe they've reached a bottom point and now they're on the way up. I need to go out and buy something before they hit 5%."
NAR's Yun said he expects rates to climb to around 5% by this time next year as the Fed scales back QE but adds that won't significantly affect home sales. One reason: No less than a third of U.S. homebuyers are paying with cash, Yun said. Most of those sales are to individuals, not to institutional investors that tried to drive down home price with mass purchases during the foreclosure wave.
THE NEW SHARECROPPERS
Foreigners with Cash are buying lots of existing homes throughout Southern California. So, the foreigner who has cash needs no bank loan or approval- it is irrelevant to them. In contrast, locals who wish to buy are out of luck unless they can meet U.S. BANKERS strict and hard to qualify for loan origination standards.
This is a global set-up that transfers wealth from existing, long term owners like myself to foreigners who can just buy-in to any American neighborhood they want. Thus, ordinary Americans are becoming the new "share-croppers", while foreign nationals are the new ownership class, with all the power and influence that brings. Americas thus are being dispossessed in their own country, falling farther and farther from the "American Dream".
Gary, you state "Most of those sales are to individuals, not to institutional investors that tried to drive down home price with mass purchases during the foreclosure wave."
Huh??? How is it possible to drive prices down with mass purchases? Mass purchases would cause the prices to rise, not decline.
It also seems that the "experts" being quoted in this article all have a vested interest in the home market going up, and so it is natural that they are going to cheerlead it.
Until the interest rates go up, the banks are not going to be lending out money. When they have lent out money at low rates for long terms, and when their depositors start to demand a better return on their deposits as rates climb, the banks will have to pay it out. That will put a squeeze on the banks. They cannot very well lend money out at low rates while paying depositors high rates. And so banks wait for rates to climb before they lend again. And yet, when rates finally do climb and banks start to lend again, borrowers will not be able to afford the higher rates. A catch 22 situation.