According to Capital Economics, the U.S. is currently in recovery mode. Other reports contend we have not reached the bottom yet. However, the research firm points to increasing home sales and drop in excess supply, which leads to price gains, as reasons to believe the U.S. is past bottoming out. Capital Economics said cash buyers and investors are driving improvement in sales, which explains the growth despite tight lending conditions.
Data released on Tuesday from the National Association of Realtors (NAR) backs what Capital Economics is saying. The NAR reported a rise in existing home sales in April after a two-month drop and a rise in prices. Lawrence Yun, NAR chief economist, too, stated that the housing recovery is underway based on the home sales data, and said it “appears to be extending to home prices.” According to the NAR, all-cash sales made up 29% of transactions in April and investors purchased 20% of homes. The NAR also reported a 10.1 percent yearly increase in the median price of existing homes, and a monthly and yearly rise in median prices in all four regions.
Even with positive reports on the housing market, the question of how long this will last still remains.
Patrick Newport of IHS Global Insight called the rise in home prices a a big surprise and said without more information, it impossible to tell what caused prices to rise last month. “Home prices can shoot up, among other reasons, if demand picks up sharply, if the proportion of distressed sales drops sharply, if the proportion of more expensive homes sold rises sharply, or some combination of these,” said Newport.
In a separate report released Monday, Capital Economics pointed to two pressing issues that threaten to shake up the market and derail recovery: the impact of the eurozone crises and the settlement’s effect on foreclosure inventory. However, Paul Diggle, author of the Capital Economics report think that the US will shrug off a limited euro-zone break up.
Some speculate that the $25 billion robo-signing settlement will result in homes moving from shadow inventory to the visible supply, thereby increasing the high share of distress homes on the market, causing prices to fall further. Even so, Capital Economics believes the demand from investor and improvement in first-time and repeat buyers should be enough to absorb the increase in supply.
While the research firm believes the housing market will maintain its composure through the hiccups, Capital Economics believes right now, time is probably the best healer, and even the most drastic of government interventions is limited in speeding things up.
Read original article “NAR Data Points to Recovery, But How Long Will It Last?” by Esther Cho at DSNews.com, dated 5/22/12.