SANTA ANA, CA--(Marketwired - Nov 11, 2013) - The U.S. housing market, a critical driver of the economic recovery, is finally showing increasing signs of improvement. In many markets throughout the United States, prices are rising, construction crews are finally starting to build again and distressed sales are falling. While most analysts expect home price appreciation to slow in 2014, the gains made over the past two years seem real and sustainable.
So, what's driving the recovery?
Low Interest Rates
First, mortgage interest rates remain historically low, even with the increase in rates since the bottom of Treasury yield last year. The Federal Reserve's aggressive and highly accommodative monetary policy, including the purchases of mortgage-backed securities, set the stage for a revival of the housing market. Lower mortgage rates increased both refinancing and purchase loans, reducing monthly payments, and therefore supporting private consumption and encouraging purchases.
Borrowing rates are still near all-time lows, with a 30-year fixed-rate Freddie Mac mortgage at 4.10 percent for the week of October 31. Refinancing also gave households more spending power as it lowered monthly payments. Low rates are increasing housing demand. There is reason to believe rates will remain at these historic lows, as the Fed has telegraphed to financial markets that they should anticipate low interest rates for as long as it takes to reduce unemployment.
Second, some markets -- once awash with unsold foreclosures -- have morphed into thriving meccas of bustling sales activity, increasing prices and the scarcity of inventory. Nowhere is this more evident than in the southwest. In Las Vegas, once the poster child of the housing boom and bust, prices are galloping upward at an amazing 27.5 percent, while prices in San Francisco jumped roughly 25 percent year-over-year, according to the Standard & Poor's Case-Shiller 20-city home price index.
Los Angeles and San Diego, two cities where prices fell hard during the bust, have come roaring back too, with prices up sharply at 20.8 percent and 20.4 percent, respectively. Miami, which was hit hard by the foreclosure crisis, is rebounding strongly with new condo towers rising and sales soaring 13.7 percent, largely due to strong demand from Latin American and European buyers. Even the Northeast, where prices barely moved until this year, has shown recent strength.
Home values nationwide rose at a healthy pace over the past year, rising 12.8 percent through August, as reported by Case-Shiller. Year-over-year prices are up in all 20 cities tracked by Case-Shiller. CoreLogic's home price index shows similar gains, but with some evidence that the double digit gains of the past two years are slowing on a national basis. That said, the performance of local markets will continue to vary widely.
Existing Home Sales Up
Sales of previously owned homes have roared back to life in recent months, jumping 13.2 percent in August to the fastest pace since November 2009, according to the National Association of REALTORS®. Purchases climbed to a 5.48 million annual rate through August, up significantly compared to the 4.84 million unit level in August 2012. In addition, an increasing portion of the resales are retail owner-occupied, which is an important shift towards stability.
Builders Are Back
Most importantly, new home construction is back too. In Orange County, Calif., where I live, over 50 new housing projects have gone on sale since September 2012, with more than 3,300 new homes on the market. Nationwide, new home construction hit a five year high in August, as single-family housing starts surged 7 percent to an annual rate of 628,000 units. Construction is still a fraction of what it was, but it is trending upward -- and that's a good thing for the economy. In almost every American city, there are more cranes in the sky and holes in the ground erecting new condo towers or single-family homes -- and that means more jobs and more new housing.
There is a widening debate over whether the housing market is recovering. Optimists point to all the leading housing indicators mentioned above. Skeptics, blinded by years of negative headlines, worry about underwater borrowers, banker "shadow inventory" and other threats. My view is that home ownership will always be crucial to a stable and secure economy.
While cautious optimism is warranted, we believe that the housing sector's momentum has staying power and that current prices are sustainable. Clearly, some economic headwinds remain, including a looming battle over federal spending and the debt ceiling. But for now, builders are building, sellers are selling, and lenders are lending more than they have in many years. We'd all like to see things improve further when it comes to jobs, but real estate is back. If you have been thinking of buying or selling, maybe it's time for you to call your local agent and see all the amazing positive developments in the real estate market. Investors are actively buying right now, so consumers who in particular want or need to sell should get a current view of the market from their agent.
Steve Ozonian is the Chief Real Estate Officer for Carrington Holding Company, LLC, where he has operational and financial responsibility for the company's growing portfolio of real estate operating units, including Carrington Real Estate Services, Carrington Property Services, Carrington Home Solutions and Carrington Escrow and Insurance Services. He was named one of the 100 Most Influential Leaders in real estate by Inman News in 2013. Steve was formerly Chairman & CEO of Prudential Real Estate and CEO of Realtor.com.