Housing Market Fundamentals Best Focal Point

October 09, 2012 / Russell Legato, Residential Property Analyst

Concentrating the economy’s analysis on the housing market fundamentals are a bright ray of hope in a morass of slow recovery. True, the improvement is not as rapid as economists would wish. But, it is increasing faster than employment and other areas, for example.

Housing Market Fundamentals Best Focal Point

Homes for sale are being listed at higher prices. As sales increase, jobs in the construction industry increase along with them. As the pool of existing homes is depleted, builders can put up new homes to fill the void. In spite of the backlog of foreclosed properties in some areas, the market for new homes is on an upward trend.

Despite the demand for mortgage money to facilitate sales, the banks are reined in by new regulations. A loan officer is now wary of any applicant who does not have a spotless credit history. Interest rates are still at an all-time low. However, mortgages are only within the reach of those with excellent financial reputations.

Turning to the reason for the slow improvement, we confront the current job market. Employment growth is not happening at an adequate rate. This affects everything including home sales. When you view the improvement in real estate in light of the job growth rate, real estate advancement is impressive.

The situation in Spain is unclear as to its reform program. The coming week should clarify how it will play out. The reform methods may allow Spain to look for a line of credit. Bailout funds for the banks there will be requested.

U.S. conditions in manufacturing are still weak. According to the New York Federal Reserve, the activity index fell to 10.4 from 5.5. Backlogs dropped to 14.9, a decrease of 4 points. There was a decline in employment indices, while the outlook for the next six months went up from 15.2 to 27.2.

The Philadelphia Federal Reserve reported a continuing slow pace in contracting in September. The index for new orders went up only 6.5 points. Shipment index went down 10 points to -21.2 and the order backlogs index rose by 8 points. There are also promising indices with the 6-month outlook going up to 41.2 after being only 12.5 in August.

Returning to the numbers pertaining to housing market fundamentals, starts were seen at the seasonally adjusted rate of 750,000. Single family homes showed starts numbering 535,000, which reflected a 2.3 increase. However, building permits went down to 803,000 from 811,000 in July. This seems to contradict the indices showing increases in starts.

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