Credit Commentary

US housing market showing signs of recovery

By Zarana on Friday, July 31 2009

Recent signs of a housing market turnaround were seen in new home sales data for June, which rose 11% over May's levels, though has declined 21.3% YOY. The latest spike was the biggest monthly gain in eight years. In addition, the existing home sales rose for the third straight month in June feeding optimism about the long suffering housing sector.
June's median home price was $206,200, down 6% from May's $219,000 and down 12% from the $234,300 of June 2008. Moreover, the Case-Shiller home price index for May posted an increase of 0.5% (6% annualized), the first monthly rise since 2006, though prices have tumbled more than 32% from their peak in the second quarter of 2006.
The increase in home sales was spurred by a drop in prices and a rush by consumers to take advantage of a new first-time homebuyers’ federal tax credit. While, The number of houses on the market dropped to the lowest level in more than a decade.
Economists surveyed by Dow Jones Newswires expected June sales to climb just 2.3% to 350,000. Although annualized sales for June of 384,000 new homes were better than experts forecast, they represented only about one-third of the average 900,000 units sold yearly.
Competition from foreclosures and short sales continued to take a huge bite out of median prices in the distressed markets like California and Florida, where new construction comprises the lion's share of home sales. Therefore, recovery of the housing market will be slow as the new homes are in competition with used homes, which are cheaper these days because of foreclosures.
Moreover, the prices are down because of too much supply. The ratio of houses for sale to houses sold in June was 8.8 with inventories shrinking. The ratio was 10.2 in May and at the end of June, there were an estimated 281,000 homes for sale. That's below 293,000 for sale at the end of May.
The rising sales are an indication restoring housing sector, which led the United States into the longest recession since the Great Depression of the 30s. Still, caution is warranted as long as the U.S. unemployment rate and mortgage foreclosures keep rising. Moreover, the economists are concerned about foreign investor confidence in the U.S. at a time when the government is trying to finance a record fiscal deficit of over a $1 trillion in 2009.