Housing sector still drives economy

The housing market was the most successful economic sector this year. Last week’s Case -Shiller home-price index report showed a fifth straight month of year-over-year increases in national home prices. The figures show that U.S. home prices started to improve the first quarter of 2012 and that housing starts, new home sales and foreclosure statistics are now supporting a healthy housing sector.

Many economists and analysts are predicting that the housing sector still will be a “meaningful contributor” to economic growth in 2013. And because of that related housing industries like construction, furniture manufacturer/sales and supplies are also expected to add to economic growth. Economists are also beginning to see a positive feedback loop for housing as well. Increasing home prices enable lenders to be less stringent with home financing allowing more buyers market access which in turn increases home prices. Increased consumer and builder confidence to invest and spend stimulating the housing market and the overall economy.

The question that needs to be asked is, how, despite relatively high unemployment levels, insignificant increases in wages, the expectation of increasing taxes lending standards remaining tight, is the housing market able to recover? The answer is because of record low mortgage rates, which are due mostly to the Federal Reserve’s decision to purchase mortgage-backed securities. By doing so, the Fed has and continues to bolster home prices.

Today’s incredibly low interest rates have enabled a buyer to purchase a home that is approximately 50% more money than what they could have afforded under the average mortgage rates over the past 20 years.

Distressed sales, because of foreclosures and short sales, could still adversely impact the housing market. These sales started to increase in the second quarter of 2012. As these homes sell for a discount they put downward pressure on home prices and are a continued concern.

Another indicator of the real estate sector’s health is the pending home sales index (PHSI). Last week it was reported that pending home sales increased in November for the third consecutive month and reached its highest level in two and a half years according to the National Association of Realtors. This index increased 1.7% in November when compared to the previous month. It is 9.8% above November of 2011.

The Pending Home Sales Index is at the highest level since April of 2010 when buyers were trying to beat the deadline for the home-buyer tax credit.

The previous time this index was at a higher level was in February of 2007. Pending home sales have increased for 19 straight months on a year-over-year basis.

Regionally, in November the PHSI increased 5.2% in the Northeast. In the Midwest it increased 0.1%. In the South it remained relatively constant. And in the West it increased 4.2%. This shows that inventory constraints are limiting sales.


Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be e-mailed to [email protected] or she may be reached directly at 203-249-2244.

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