Signs of Recovery in US Housing Market

In June, the S&P/Case-Schiller index of home prices indicated a year-on-year rise of 0.5 percent, the first positive movement in the closely-watched index since September 2010. And compounding the good news, the US Federal Housing Finance Agency’s (FHFA) seasonally adjusted purchase-only price index rose 1.12 percent in the second quarter of 2012, a sharp contrast to the 8.76 percent decline during the same period last year.

”Although some housing markets are still facing significant challenges, house prices were quite strong in most areas in the second quarter”, said Andrew Leventis of FHFA. “The strong appreciation may partially reflect fewer homes sold in distress, but declining mortgage rates and a modest supply of homes available for sale likely account for most of the price increase.”

A noticeable decline in foreclosures combined with low mortgages rates helped the cities hit hardest by the collapse of the housing bubble. In the Phoenix area prices surged by 14 percent for the 12 months ended in June whilst in Miami, for the same period, there was a 4.4 percent rise. The state is still dealing with excess supply but luxury waterfront properties have been snapped up by foreign investors. The housing market is probably in its worst state in Atlanta, where home prices continue to fall and foreclosure rates remain high.

!m[](/uploads/story/325/thumbs/pic1_inline.png)At the other end of the scale, the strongest housing markets share common traits –high employment rates, a variety of desirable properties and intense interest from buyers. San Francisco’s market has improved mainly because of increased investment in Silicon Valley whereas Washington DC’s market has been extensively supported by the federal government. New York and Manhattan in particular have benefitted from a persistent housing shortage for both rental and for-sale properties.

With rising prices in most states, Americans are more likely to put their homes up for sale, giving a further boost to a market burdened with a low supply of available homes. The pricing upswing will also help ‘underwater’ homeowners – those whose properties are worth less than what they owe on their mortgages.
“We’re seeing consistently good numbers out of the housing market. It’s hard to get too negative on the U.S. economy with the housing market doing better than expected,” said Paul Zemsky, chief investment officer of Multi-Asset Strategies at ING Investment Management in New York.

Not everyone is seeing the indices as a recovery of the housing market. Although sales figures have recently remained at steady levels, mortgage applications have declined, suggesting that a large part of the demand has come from investor buying and urgent, distressed sales. By all accounts, mortgage standards remain tough, with lending institutions requiring high down payments and pristine credit scores. The tight lending criteria mean that banks still believe there is high risk in the market. Were it otherwise, the level of down payments – a major obstacle for entry-level buyers – would be falling.
“Residential lending remains just about as tight as it can be,” said Jonathan Miller, president and CEO of Miller Samuel Inc. “To say that housing is recovering, when you have all these headwinds, feels premature to me.” According to Miller, the recent rise in prices can be described as stabilization, rather than any type of recovery.