Fiserv-Case Shiller’s most recent home index suggests the U.S. housing market has truly entered a recovery and many analysts say the only thing standing in the way of a full turnaround is economy. Home prices are rising and so is the cost of rent, and the combined jolt of new confidence and a desire to invest money rather than lose it to landlords is expected to drive even more people toward home buying. Even so, analysts say consumer confidence in general is still low and that a sea change in the wider economy is needed before a sustained housing recovery can take hold. For more on this continue reading the following article from TheStreet.
It’s been a long time since the U.S. housing market was the bright spot for the economy, but the long decline in home values seems to be ending.
That’s the conclusion of Fiserv-Case Shiller’s most recent home index reading, which makes the compelling case that the housing crisis is abating after six years and home prices for millions of American homeowners are once again gaining in value.
Home prices increased in 40% of 384 metropolitan areas tracked by analysts, and by the first quarter of 2014, analysts expect U.S. home prices to rise, on average, by 5%.
If Fiserv-Case Shiller is correct, the long road to recovery for U.S. housing won’t be straight up: Before that 5% rise in home values its analysts are predicting, home prices may depreciate by 1% within the next 12 months.
Rising home values should reignite the real estate market, as more buyers jump off the fence and make an offer for a home before home prices rise any further.
The rising cost of home and apartment rentals is also helping push up home prices. Fiserv says it is now often cheaper to buy a home than rent one, and that’s causing first-time homebuyers to househunt and accelerate demand for homes with “for sale” signs planted in their lawns.
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The number of homes on the market is beginning to decline, and lower volume creates greater demand among buyers, which boosts home values even more.
“Inventories of single-family homes have dropped below 2.5 million units, the lowest levels since 2004. This shrinking supply of unsold homes is nudging home prices upward in selected markets,” explained David Stiff, chief economist at Fiserv, in a statement.
There’ still plenty of work to be done before housing truly and comprehensively comes back: “Negative equity remains a factor constraining supply in some markets, since many underwater homeowners cannot come up with the cash to cover the difference between their outstanding mortgage balances and the current market value of their homes. Many positive equity homeowners are also keeping their houses off of the market, waiting for price increases to boost their selling profits,” Stiff said.
Metro U.S. areas with the biggest real estate value gains include Detroit (8.6%) and Miami (6.4%), while areas still suffering big declines include Atlanta (-17.4%) and Las Vegas (-7.4%). Fiserv attributes these price declines to the large number of foreclosures.
In a reversal, it’s no longer housing holding back the U.S. economy but quite possibly the U.S. economy holding back a resurgent housing market.
“The state of the overall economy presents the biggest risk to the housing market,” Stiff says. “The economic recovery has stalled each spring/summer during the last three years, and last summer’s economic stumble was accompanied by a sharp decline in consumer confidence, which cut into home sales activity and pushed home prices down a little further,” he adds.
If confidence were to drop by similar amount this year, either because of the monetary crisis in Europe or the political impasse in Washington D.C., then another downward leg in home prices is possible, Fiserv concludes.
“However, given that owner-occupied housing is incredibly cheap historically and falling confidence would be accompanied by lower mortgage interest rates, we may be at a point where housing markets can finally withstand a weak economy,” Stiff concludes.
That would be welcome news to millions of homeowners, if it comes to pass. But after wandering the desert, so to speak, for six years, a long, cool drink of water in the form of higher home values is refreshing.
Rising home values allow homeowners to breathe a sigh of relief, and that can in turn spur the uncertain economy, with many homeowners spending more money knowing their chief financial asset is on the mend, and others selling their homes for more cash, thus allowing them to downsize, which would presumably leave more money in their bank accounts, and more money to spend in the consumer economy.
It’s been quite some time since home values were making Americans feel better about their spending power. Let’s just hope they don’t start mistaking their homes for ATMs again.
This article was republished with permission from TheStreet.
