Home Sales Are Up–But For How Long?
- Jun 10, 2008
On Monday, the National Association of Realtors released its Pending Home Sales Index results for April–which, somewhat surprisingly, showed the amount of signed contracts rose 6.3 percent from March.
The index increased from a reading of 83.0 in March to 88.2 in April, according to the NAR.
The results were varied across the U.S.
- In the West, the index increased 8.3 percent in April and is actually 4 percent higher than a year ago.
- The index shot up 13 percent in the Midwest, although it is still 13.1 percent below the April 2007 level.
- In the South, the index rose 4.6 percent to 88.8–22.5 percent
below last year’s level.
- And the index declined 1.9 percent to 79.3 in
the Northeast in April, which is 12.2 percent below a year ago.
Yet, despite the index rising, the group predicted that housing starts–multifamily units
included–will decline 27.2 percent this year to 987,000, followed by a
0.6 percent drop in 2009.
Median home prices are expected to decline, too.
- The NAR estimates the median new home price will be 3.1 percent less this year, around $239,500. "Rising construction costs will provide less room for price cuts on
new homes," said chief NAR economist Lawrence Yun.
- However, the group says prices should increase 5.4 percent in 2009 to
The NAR blamed buyers’ difficulty obtaining mortgages for the recent housing market woes but said the lending situation was improving.
However, that doesn’t mean sales necessarily will rise as a result–because, according to Yun, low consumer confidence could hurt the market.
Yet he said the overall economy could improve and predicted U.S. gross domestic product growth would be 1.7 percent this year and 2 percent next year.
Growth? Why, then, would consumer confidence weigh so heavily on housing?
The answer can be found in Yun’s unemployment predictions–which suggest the unemployment rate could average 5.3 percent in 2008 and 5.6 percent in 2009.
Those numbers are in line with Friday’s depressing jobs report from the Labor Department, which said:
- The unemployment rate skyrocketed to 5.5 percent in May from 5 percent–its fifth consecutive month of decline.
- The May unemployment increase was, according to the New York Times, the most severe monthly rise in 22 years–and it cost the economy 49,000 jobs.
With less jobs and rising food and gas costs, Americans are stretched thin, wary of their financial future–and unlikely to go house shopping.
That’s especially true in rural areas, which benefited from rising home prices several years ago as consumers looked to outward-lying suburbs and towns that let them commute to urban jobs without paying urban home prices.
It was, according to a recent Bloomberg article, a "drive until you qualify" way of thinking–and it helped emerging suburbs and exburb commuter towns grow 15 percent in popularity from 2000 to 2006, almost three times as fast as the U.S. population.
But gas prices have risen consistently this year–last week, they hit a new national high of $4 a gallon. And it’s killing commuter towns.
Home prices in areas lacking public transportation where most citizens have long commutes are falling faster than in neighborhoods that are closer to cities, a recent study showed.
Cities don’t necessarily have it easy. Many, like Miami–where home sales are still in a "free fall," according to USA Today–are struggling too.
But if consumer confidence is our biggest hurdle to overcoming the housing slump, we’re in luck. Because that means we don’t have to wait for lenders, prices, inventory reduction or any other out-of-our-hands factor to turn things around.
We just need to all start feeling better about the economy. Then buying real estate. Then investing in real estate development. Then selling real estate.
See how easy that sounds? Unfortunately, getting the general public to do it will probably prove more difficult.
But if consumer confidence is in fact our biggest burden, how should we go about turning it around?
Any suggestions? Post your thoughts below…