International news: US market on the mend

Housing marketWhen the housing bubble burst in the US, it plunged the economy of the country – and the rest of the world – into a recession from which it has yet to recover.

But now, just five years later, many economists believe that the housing market will be one of the primary drivers of growth in the US economy over the next couple of years.

Moody’s Analytics, for example, is forecasting somewhere between one million and two million housing “starts” this year, which it estimates will create more than one million new jobs.

“There’s a lot of pent-up demand for housing, and very little supply,” says Celia Chen, housing economist for Moody’s Analytics. “As demand continues to improve, home builders will have nothing to sell. They’ll have to build. And growth in building will mean adding not just construction jobs, but also manufacturing jobs to make the appliances and furniture needed in the new homes, which in turn drives up overall consumption.”

Meanwhile Joseph LaVorgna, chief US economist of Deutsche Bank, explains that one of the most significant indirect effects from a housing recovery is the “wealth effect” on consumers due to an increase in home prices. “Better home values can affect both consumer psychology on spending as well as their actual finances. Even small moves in home prices can have large effects on consumption, because housing comprises such a significant share of household assets.”

But is demand really rising enough to prompt the expected building starts, or drive up prices?

Well, according to the National Association of Realtors (NAR), the inventory of pre-owned homes for sale was at a seven-year low of 1,74-million in January. This represented a 4,2-month supply, down from a 4,4-month supply in December, and NAR chief economist Lawrence Yun says the reasons for the drop include slow and steady job gains, record-low mortgage rates and higher consumer confidence.

“The number of potential buyers who stayed on the sidelines accumulated during the recession, but they started entering the market again early last year as their financial ability and confidence steadily grew, along with home prices, and lower inventory levels now are encouraging multiple bids from buyers.”

In addition, many of the distressed homes that were adding to inventory have been absorbed in the past year by individual investors, private equity groups and hedge funds aiming to renovate them and rent them out – and hurrying to buy before prices really start to rise again.

Indeed, RealtyTrac, an online foreclosure marketplace, reported recently that distressed properties, which include foreclosures and short sales, accounted for 43% of all US pre-owned home sales last year. What is more, the prices of such sales were 2% up, on average, compared with 2011.

And speaking of prices, the latest Standard&Poor/ Case-Schiller Home Price Index shows a 6,8% year-on-year gain in December, while the latest Zillow market report indicates a national average home price increase of 0,7% in January – the 15th consecutive month of gain – and predicts a further 3,3% increase over the course of 2013.

Zillow puts the current national average home price in the US at $158 100. The boom-time peak, in April 2007, was $193 900.

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