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Signs of Renaissance in the US Housing Market Spurs Broader Recovery Hopes

on Sep 27, 2012
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While the US unemployment rate is still causing concerns, the housing market is gathering strength, spurring hopes for a broader economic recovery. On 26 September 2012, The Times reported that US home prices saw their strongest annual growth in two years, contributing to a rise in consumer confidence.

The Standard & Poor’s/Case-Shiller index of home values in 20 leading cities in the US increased by 1.2 percent in July, its strongest annual advance since August 2010. In addition, all the surveyed cities showed price increases from the previous month.
The NY Times reported that the biggest price gains were observed among the least expensive homes, which were rising in value slightly faster than homes in the middle and upper tiers. The NY Times quotes data by Patrick Newport and Michelle Valverde of the Massachusetts-based research company IHS Global Insight showing that the price of a typical lower-price home increased at an annualised rate of 1 percent from June to July on a seasonally adjusted basis. Middle-tier homes saw a 0.4 percent increase, whereas the highest tier advanced by as little as 0.1 percent.

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!m[](/uploads/story/473/thumbs/pic1_inline.png)The NY Times notes that while not all markets are showing an improvement in the lowest tier, with Atlanta and Chicago still lagging, the majority of the cities are like Boston and San Diego where the bottom third of houses are doing better. Out of the 20 cities, Phoenix has shown the strongest recovery, with homes under $127,000 (£78,500) gaining 33.5 percent from July 2011 to July 2012, and homes above $211,000 posting an 11.5 percent gain for the same period. Atlanta, Chicago, Las Vegas and New York, however, are the cities where prices are reported to be lower than they were a year ago.

The Times reports that among the factors supporting prices are declines in the stock of unsold housing, with a 23 percent drop in the number of homes for sale over the past year pushing supply back toward historically more normal levels. In addition, as noted by the NY Times, prices are also boosted by a growing interest from investors looking to buy low-price properties and then convert them to rentals.

The improving health of the US housing market was interpreted by economists as a sign of a stronger growth in the broader economy. Since the 2007-08 crash in the US housing market triggered recession, house prices and homebuilding figures are closely monitored by analysts.
The signs of recovery in the housing market were also accompanied by an unexpected rise in consumer confidence, which surged to a seven-month high in September. The Times reports that the Conference Board’s index of optimism went up from 61.3 in August to 70.3, well above economists’ estimates. According to the NY Times, while some analysts attributed the results to the improved housing market outlook, others credited the gains in the stock market. “A growing feel-good factor is becoming evident among US consumers, which is being accompanied by increasing signs of a long-awaited improvement in the housing market,” noted Chris Williamson, a Markit economist, as quoted by The Times. *“The data augur well for consumer spending and the economy in general.”*

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