(MENAFN Press) (EMAILWIRE.COM, November 27, 2012 ) San Francisco, CA --
The U.S. housing market is making consistent gains and is thereby boosting the economy, according to the latest housing reports.
Sales of previously occupied homes rose solidly in October. New-home sales and home-price indexes have reached multi-year highs. Lowe's Cos. has also reported a surge in net income, a sign that home-improvement retailers are benefiting.
The housing market's recovery still has a long way to go. Recent positive outlook is helping to lift an economy that is being squeezed by a global slowdown, possible spending cuts, and tax increases.
The housing recovery could boost U.S. economic growth by a full percentage point next year, with a stronger housing market resulting in more jobs and consumer spending.
An index of builder sentiment compiled by the National Association of Home Builders/Wells Fargo rose to 46 this month, up from 41 in October. It was the highest reading since May 2006, just before the housing bubble burst. These index showings are helping to drive the housing rebound and re-establish confidence among builders. The index has been rising since October 2011, when it was 17, surging 27 points in the past 12 months.
Reports also show sales of previously occupied homes are near 5-year highs, excluding temporary spikes in 2009 and 2010. Sales rose 2.1% in October to a seasonally adjusted annual rate of 4.79 million, the National Association of Realtors said.
Sales are nearly 11% higher than they were a year ago, though they remain below the more than 5.5 million that economists says is consistent with a healthy market.
Some purchases of previously occupied homes in the Northeast fell 1.7% due to Hurricane Sandy.
A key factor fueling the gains is a gradually improving economy, which has increased the number of people looking for homes. At the same time, fewer homes are available for sale. The low supply is helping push up prices.
Only 2.14 million homes were available for sale at the end of October, the lowest supply in 10 years. It would take just 5.4 months to exhaust that supply at the current sales pace.
mortgage rates have hit all-time lows and rents are rising, making the purchase of a single-family home or condominium more attractive.
Economists predict that the rise in people seeking to buy should support more construction over the next few years. According to Census data compiled by Bank of America Merrill Lynch, in a healthy economy the number of new households normally reaches 1.2 million a year. It averaged only 570,000 a year from 2007 through 2011 and reached 635,000 last year. The Census expects about 1 million new households this year.
In September, builders broke ground on new homes at a seasonally adjusted annual rate of 872,000. That was the fastest pace in more than four years. Yet it still trailed the rate of household formation.
Sales and prices remain below normal levels partially due to many potential buyers unable to meet stricter lending standards or make the larger down payments that banks have required since the housing bust. First-time buyers are feeling the pinch of stricter rules and only accounted for 31% of home sales in October, slightly down from September and below the 40% common in a healthy market. These extremely tight lending standards may be limiting home sales and holding back the economic recovery, according to Federal Reserve Chairman Ben Bernanke.
The steady improvement in housing is benefiting the economy. Each new home built creates additional jobs, yielding additional taxes, and creating greater demand for steel, glass and other materials. People who buy new homes usually buy more furniture, carpets and appliances, leading to more manufacturing and retail jobs. More home construction generates more demand for pick-up trucks, as builders and contractors add trucks to handle more work.
Alan Levenson, chief economist at T. Rowe Price, estimates that the housing recovery could add 25,000 jobs a month next year.
Home improvement chains also benefit from the economic housing boost. Home Depot Inc. recently reported slightly higher third-quarter net income and raised its full-year forecast.
According to private data provider CoreLogic, the clearest sign of a better housing market may be the increase in prices. A measure of U.S. prices jumped 5% in September compared with a year ago, the largest year-over-year increase since July 2006.
Higher home prices can also make homeowners feel wealthier and more likely to spend more.