Reasons Why U.S. Housing Market Recovery is Genuine

By: Money_Morning

Gary Gately writes: The housing market recovery is for real this time. Coming after the housing market crash, the recovery is welcome news to those in the industry - and bodes well for the economy as a whole.

"It almost seems too good to be true," Lawrence Yun, the chief economist at the National Association of Realtors, told Money Morning.

The latest confirmation of the market's rebound is the new survey of home builder confidence from Wells Fargo Bank and the National Association of Home Builders, which climbed to its highest level since 2006.

And housing starts were up 6.8% in May and 28.1% year to date, the U.S. Census Bureau said.

Why The Housing Market is On the Rebound

Other reasons that the recovery's the real deal abound. Here are seven of them:

•  Prices are rising, but not enough to price buyers out of the market and not nearly to reach bubble levels.

  Celia Chen, an analyst with Moody's Analytics, noted in an interview with Money Morning that home prices, which climbed 12.1% in April year over year, still remain 26% below peak bubble levels.

  "What I see is a market that is on a healthy, sustainable growth path," Chen says.

  She's not the only one.

  "Even with the recent price increases, home prices nationally remain undervalued relative to fundamentals and much lower than in the last bubble," Jed Kolko, chief economist at the real estate website Trulia, said on his blog. "That's why today's prices are actually still a rebound, not a bubble."

• Interest rates on 30-year fixed mortgages, now at about 4%, remain near historic lows, even with their recent uptick.

And a moderate increase, which many experts expect, wouldn't be enough to drive buyers away. In fact, David Zugheri, co-founder and executive vice president of Houston-based Envoy Mortgage, told Money Morning the prospect of rising rates may prompt some to purchase homes because they anticipate the increase.

"With those who have been just kind of thinking about buying and then they're watching rates go down, this [recent increase] has just been a kind of shock to the system, so to speak," Zugheri said. "They're looking and saying, 'Well rates are not going to go down to zero. Maybe they've reached a bottom point and now they're on the way up. I need to go out and buy something before they hit 5%."

NAR's Yun said he expects rates to climb to around 5% by this time next year as the Fed scales back QE but adds that won't significantly affect home sales. One reason: No less than a third of U.S. homebuyers are paying with cash, Yun said. Most of those sales are to individuals, not to institutional investors that tried to drive down home price with mass purchases during the foreclosure wave.

• Buying is cheaper than renting in the nation's top 100 largest metro areas, Trulia's Kolko told Money Morning, and demand far outstrips supply in many areas.

   The competition for homes has led to bidding wars in some places, including Los Angeles, Boston, San Francisco, Seattle, Washington, New York, Miami and Phoenix.

• Sales of new homes rose in April to the second-highest level since 2008. Existing home sales, meanwhile, climbed to the highest level since November 2009.
• The percentage of Americans who believe now's a good time to sell a home climbed in May to its highest level in three years. According to a survey by Fannie Mae, 40% of Americans said in May it was a good time to buy a home, up from 30% in April and 16% a year before.

  "Sentiment toward buying a home appears to be catching up with the strengthening housing market," Doug Duncan, senior vice president and chief economist at Fannie Mae, told USA Today.

• The job market has been stable and improving slightly. Secure jobs, naturally, create demand for homes, and job confidence has been high. (The layoff and firing rate reported by the Department of Labor has been stable for the past 12 months.)  And consumer confidence is near a six-year high.

• Rising home prices have helped push the number of underwater homeowners below 20% for the first time in more than three years. Market researcher Core Logic says 9.7 million, or 19.8% of homeowners with a mortgage, owed more than their homes were worth as of March.

Some Caveats

For all the optimism, there are caveats to be aware of about the housing market's recovery.

If interest rates rise too much too quickly, of course, that could dampen sales.

And the shortage of housing in numerous parts of the country has kept sales shy of what they could be.

Yun says housing starts, now running at about 1 million a year, need to be increased to 1.5 million a year to relieve the housing shortage. He says the shortage reflects lack of builder confidence in the past, which kept builders from buying land that would have been ready to build on now, and an exceptionally tight market for construction loans.

More housing construction could help narrow the gap between the rate of home price increases and income increases.

Banks have maintained extremely tight underwriting standards, keeping out of the market numerous buyers who should be eligible for loans, industry experts say. "There are many frustrated renters who have good credit - maybe not the best credit - and they cannot get into the [housing] market," Yun said. "They cannot participate in the recovery. Right now, you have only the 'haves' able to participate in the recovery."

For more on the housing market recovery, check out These 5 Charts Prove the Housing Recovery is for Real - and Just Beginning

Source :http://moneymorning.com/2013/06/18/7-reasons-this-housing-market-recovery-is-genuine/

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