By Covering Business October 19, 2012
By Sameepa Shetty
Columbia Journalism School C’13
The housing market is on the mend. Home sales are rising; foreclosures are declining; and prices are steadily creeping back toward pre-crisis levels.
The main drivers of the housing recovery thus far have been record-low interest rates, improved consumer confidence and broad stock market gains. Economists and analysts say these factors will continue to get better, or at least not get any worse. If they’re right, the weakness in the housing market – widely regarded as the largest hurdle before a full economic recovery – should continue to fade.
The Federal Reserve’s latest assessment of the residential real estate market was largely positive. In its October Beige Book report, the Fed said conditions had improved since its last report released in August. Most districts reported strength in existing home sales. Home prices were described as “steady to increasing,” with inventories falling in Boston, Atlanta, Minneapolis, Dallas and San Francisco.
Home prices have surged this year. The median price of an existing home has risen from $154,600 at the start of the year to $187,400 in September, according to the National Association of Realtors. The S&P/Case-Shiller home price index for 20 US cities has risen from 136.5 at the start of the year to 142.1 in July. The index has recouped all of its losses since 2011.
Home sales have kept pace with the price recovery. In August, the annualized rate of existing home sales reached 4.8 million, a two-year high and up sharply from the low of 3.4 million in July 2010, according to the NAR.
“All in all, we are more optimistic about housing,” David Blitzer, the chairman of the S&P Index Committee said in a statement last month, when the July reading of the S&P/Case-Shiller Index was released.
Distressed home sales, which had been holding back the market, are abating. As of August, they made up 22% of existing home sales, the lowest percentage since October 2008. A distressed sale occurs when a lender agrees to sell for less than the mortgage balance.
Foreclosures are also easing. Total foreclosures fell to 180,000 in September from 211,000 at the start of the year.
In January, the Fed said the residential real estate market was holding steady at “very low levels.” Since then, the outlook has improved considerably, albeit somewhat unevenly. The Fed’s October Beige Book report shows New York and Richmond reported relatively strong demand at the high and low ends of the market. Philadelphia and Kansas City showed greater demand for mid-range homes, while demand in the Boston market shifted toward lower and medium priced homes.
The improvements stem largely from the Fed’s commitment to keeping interest rates low. Since the start of the recession, Federal Reserve Chairman Ben Bernanke, has remained committed to boosting the housing market as a means to speed the recovery. The Fed’s promise last month to buy an additional $40 billion in asset-backed securities each month helped drive mortgage rates to record lows. By Oct. 5, Freddie Mac’s national rate for a 30-year fixed-rate mortgage had fallen to 3.36%, the lowest since data tracking began in 1972.
The housing market has also benefitted from a surge in consumer confidence. The Thomson Reuters-University of Michigan consumer sentiment Index jumped to a five-year high in October, according to the preliminary reading released Friday.
The broader stock market has also helped nurture housing. The S&P 500 has rallied to multi-year highs, gaining over 14% for the year. This wealth effect has also had a positive impact on consumer sentiment, which some economists say translates to greater consumer spending.
The housing market’s recovery remains fitful in some districts, particularly where credit conditions remain tight. In Boston, for example, several sources told the Fed that qualifying for a home loan “remains difficult,” according to the Beige Book. In Philadelphia, homebuilders said sales slowed in August and September and that many are opting to rent “even when local rents exceed the total cost of owning a home.”
This article was written for the Columbia Journalism School’s seminar on business journalism in the fall of 2012.
