If you’ve been watching the U.S. housing market over the last few years, you know it’s had a full bevy of ups and downs (mostly downs, really). But now that the recession is starting to peter out and the country is on its way to economic recovery, is the housing market also on the upward bound? Read on and find out.
The new housing market floor
If you look at the housing market now compared to the way it stood mark in March of 2009, it looks like a lot of progress has been made. Sales on new homes have bottomed out and formal measures of housing inventory have started to drop. It looks like the great slide in home prices has also come to an end.
These positive signs of housing market progress have not come without a cost. Much of the improvement is largely due to the heavy push by the government to right the skewed market.
For starters, the federal government successfully aided in driving down mortgage interest rates after purchasing mortgage-backed securities. The market was also aided by new lending policies from agencies like the FHA that opened programs for huge segments of the population.
Lastly, one of the largest aids to the housing market came in the form of the $8,000 tax credit for new homebuyers.
Although these measures cost the government a great deal, they also served to put a decently stable floor under the market in 2009. Many key indicators of progress were looking positive – some even strongly so.
The very end of 2009 marked a slight dip in progress for the housing market as sales began to taper off, but some analysts are quick to point out the sales typically diminish in winter months regardless of overall market health.
Existing home sales going strong
November of 2009 showed another positive jump with sales records going up 7% for existing home sales. This marked the third straight month of an increase in sales.
Thanks to the steady rate of home sales, the unusually large supply of vacant homes and homes for sale is finally starting to diminish. As many as half a million units were cleared off the inventory list for the housing market.
Clearly, government support has had the positive effect officials were hoping for. The only remaining question is whether this positive trend will hold through till the spring.
What remains to be seen in the housing market?
The next question on the tip of most housing analysts’ tongues is whether the spring will bring with it a mass of new homes for sale. The thinking goes that many homeowners have been ready to move and sell their houses but opted to wait until the market leveled out some.
The fear is that another huge burst of houses up for sale will leave the market back where it started last year, with too much supply and a significant tapering off in demand.
Some analysts are even wondering whether the first time homebuyer’s tax credit program simply moved up the demand for new home sales that would have hit anyway come spring of 2010. If this is the case, it will leave the spring market with a sharp lack of buyers.
Optimists home that the extension of the first time homebuyer credit through the first half of 2010 along with a new category of credits for existing homeowners will help override the fear of slow demand.
Tax credits currently drive the market
A glimpse at the movement behind the increased sales for the housing market shows the current tax credit incentive programs to be a large motivator behind sales strength. Unlike past years, sales that were due to foreclosure have actually diminished over time.
Because the tax credits are on the side of the home buyer, little progress has been made in new home construction. New construction loans are much harder to obtain and costs for construction have gone up due to low supply.
Because of the tax credits, it appears that housing inventories will continue to decline while residential construction stays stagnant, if not slowing. There is currently little evidence of a likely rebound in residential construction. Such a rebound would be an absolute indicator of solid economic growth for the housing market.
Interest rates headed up
Thought it’s too soon to tell for sure whether mortgage rates will go up again, most analysts think it’s likely to happen. Rates leveled out in November and have since been creeping back up. The end of the government programs makes it more likely that rates will go up, which also points to a probable leveling out in the housing market for now. After the steep drops of the past years, that’s not altogether a bad thing.
