Haven't you heard, the American housing market is in recovery? According to some experts the mounting up of positive metrics across consecutive months can only be interpreted as showing that the market has bottomed. But the market hasn't bottomed, and nor will it for at least another year, according to other experts. So, what's the truth here?
Well, it is true; there has been a lot of positive data in the last few months, including 3 straight monthly increases in home sales. Sales grew for the third consecutive month in December last year, when they were 5% up on the previous month and 3.6% higher than December 2010. This was well above the curve of the 1.7% total growth for the entire year, indicating that growth is perhaps accelerating.
For Lawrence Yun, NAR chief economist, the continued sales growth was enough to be called early signs of what may be a sustained recovery.
"The pattern of home sales in recent months demonstrates a market in recovery. Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market," said Yun.
However, recovery non-believers are keen to point out that this growth is in existing home sales, which includes short sales and repossessions. This, they say skews the results because higher sales in the bargain basket of short sales and repossessions is not indicative of the wider market.
You can't argue with them and neither does the data. According to the same NAR report, distressed homes - foreclosures and short sales - accounted for 32% of sales in December, up from 29% in November. On top of that first time buyers continue to be pushed out by cash-rich investors in the mortgage starved market, the data shows that 31% of purchases in December were 100% cash transactions, up from 28% in November and 29% in December 2010. Investors, which account for the bulk of cash transactions according to the NAR, purchased 21% of homes in December, up from 19% in November and 20% in December 2010. Meanwhile first time buyers fell to 31% of transactions in December from 35% in November.
It is no secret that first time buyers are a major part of the recipe for a healthy housing market, but in America right now beggars can't be choosers. The biggest problem faced by the American housing market at the moment is the massive inventory of distressed properties dragging down the market. The quicker these can be sold the quicker the market will recover. According to the report housing inventory fell 9.2% in December to 2.38 million existing homes for sale, which represents a 6.2 month supply at the current sales pace, down from a 7.2 month supply in November.
"The inventory supply suggests many markets will see prices stabilize or grow moderately in the near future," Yun said.
On top of that, if there is one thing this crisis has taught us (or the people who didn't already know) it is that looking at national indices is a pretty poor way of judging what and where to invest in. This is true anywhere, but in few places as true as it is in the vastness of America. In some states and areas prices, sales and almost every other metric is travelling down. But for example in Miami sales have just set a new record.
Data from the Miami Association of Realtors and Southeast Florida Multiple Listing Service show sales of single family homes and condominiums in Miami Dade County totalled 24,929 in December 2011, which is 4% more than the previous record set during the boom in 2005, and a massive 46% increase on sales in 2010. The end of the year saw sales condominiums increase by 54%, while sales of single family homes increased by 36%.
For investors by the time everyone knows that a market has bottomed it is too late, serious investors will have already got all the best deals. Investors need to use their own judgement to get in ahead of the rest. That time may just have come in America, if not in its entirety then at least in many places.
- Friday 10 February 2012