Posted by: Larry Stevens | April 25, 2013

What Do Economists Think of Housing Recovery?

What Do Economists Think of Housing Recovery? Author: Daniel Torelli
April 24, 2013

What Do Economists Think of Housing Recovery?

Every day we hear news pundits, politicians, newspaper columnists, and talk show hosts give their opinion as to the current state of the housing market’s recovery.

But what about the “true” experts – the economists? What do they think? Is the housing market taking too long to recover, or is it moving along at the expected pace?
After listening to their comments in recent interviews, economists tend to be “cautiously optimistic” – and they say American consumers should be, too!
Recent statistics show that home prices in February were 10.2% higher than the same month last year, posting the highest year-over-year gain since March 2006. Not only is the national average home price up, but several individual states also report significant gains. Nevada, Arizona, California, Hawaii, and Idaho have all seen their home prices increase by double digits over the last year. Still, though, each of those states’ prices are more than 25% lower than they were at the peak of the housing bubble, in April 2006.
Clearly, progress is being made, but the statistics prove that there’s still a long journey ahead for the housing market before it’s considered fully recovered. Economists says the increase in home prices is a step in the right direction.
“Housing price increases are extremely important to the economy as they enable more refinancing, encourage employment-related mobility, and even make consumers more likely to remodel,” Robert Johnson, the Director of Economic Analysis at Morningstar (a Chicago-based investment research firm), told ABC News.
He went on to say that consumer confidence increases as home prices go up, and his firm estimates that homeowners will actually spend 5% or more of their housing wealth gains, which would help the economy out even more!
Michael Lubanksy, a Senior Financial Analyst at SageWorks, Inc., said that after looking at his company’s calculations, he believes that the housing market is making strides.
“If someone is in the market for purchasing a home, it would seem now would be a good time to buy, given the combination of historically low interest rates and historically low prices,” he told ABC News.
But he also emphasized that not every consumer who wants to buy a home should actually do so. Lubansky said anyone who cannot currently afford to purchase a home, anyone who may be relocating to a new city within the next five years, or anyone with a low credit score, or anyone with the inability to make the required down payment on a home should not be in the market to buy one right now.
But since rent prices around the country are escalating quickly, many renters are tempted to test the waters of home ownership. Lubansky says many of these renters – especially those who only recently became gainfully employed – should hold out for awhile.
“It takes time after this for the newly employed to purchase homes. By this time, rental prices may have stabilized as developers scramble to increase supply, which would lessen the incentive from this angle,” Lubansky told ABC News.
So what does all of this mean?
Basically, these economists believe the housing market is improving, but it isn’t fully recovered yet.
The time to buy is now if you can afford to do so, but if not, they suggest that you hold steady in your current living situation, save money for a down payment, repair any damage to your credit report, and wait it out until there are more homes for sale. A larger inventory will bring home prices down, and that’s when more Americans will be able to obtain the American dream of homeownership.

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