Homebuilder confidence hit a 1 year high today, providing another sign that the worst of the housing melt down may have passed. The housing market started to crumble back in 2006, and since that time foreclosures and falling home prices have hit the economy hard, and played a major role in the recession that has effected millions. Today the The National Association of Home Builders/Wells Fargo confidence index climbed to 18, the highest level that it has been since June 2008.
While it is true that any good news out of the housing market is reason to celebrate, we have to also take the time to consider exactly what the current reading means. Sure, it is the highest since last summer, and sure it is well above the reading of 8 we saw this past January, but we still have a long way to go.
In order for housing conditions to become favorable, we have to see the reading move above 50, so the 18 reading is encouraging, but still very bearish.
The two main reasons why the housing market is making a slight come back are lower home prices, and government incentives for home buyers. These two things will help clear out inventories and encourage homebuilders to start building again, but there are still several factors that are suppressing the market.
Foreclosures remain a major problem, unemployment remains very high at 9.4%, and banks are still not to the point where credit is freely flowing. It will be a while before foreclosures stop mounting up, but unemployment did improve a bit last month, and the banks are starting to loan out more money, albeit still at a snail's pace.
Today's index reading of 18 matched what analysts had been expecting to see, and was slightly higher than the 17 reading that we saw last month.
Other good news for the housing market is that combined sales of new and existing homes have risen in 4 out of the last 5 months. The index of unsold homes on the market is still a bloated 4.1 million units, but that is 1 million less than we saw last July.
The decline in home prices is also appearing to slow a bit. In May, homes prices in the nation's 20 largest cities were 17.1% below where they were in the same period last year. Granted this is a pretty hefty decline, but it was the smallest 12 month decline that we have seen in 9 months, so there is reason to think prices could be close to stabilizing.
So while there is reason to believe that we may have seen the worst, there are still challenging times ahead. It will take a while before we know for sure that the worst has passed, but at least there are signs of life for the real estate market.
What are your thoughts? Have you seen things start to improve in your part of the country? Do you think the housing market has bottomed out, or should we expect more pain in the months to come?
Let us hear what you think about the housing market at this time.
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Reader Comments (Page 1 of 1)
8-17-2009 @ 7:40PM
al coholic said...
Today we face the unprecidented situation of declining house values all over America and not just in the speculative SoCal, Florida, and Vegas markets. Nearly every home in the country is worth significantly less than a couple of years ago..
If home values cannot be counted on to continually increase people will no longer buy way more house than they need, counting on appreciation to bail them out. So look for a trend for smaller houses in the near future.
The recent consumer binge was funded by equity from housing. The end of that means that the economy is still far off from any serious recovery. The consumer is de-leveraging too. It's not just banks.
Let's not forget that the current yearly forecast for new housing starts this year is less than half what it was 30 years ago, in 1979, when there were 50 million fewer people.
Based on that I think these positive numbers are very anemic.