In a sign that the housing market may indeed lead the US economic recovery, home prices posted their first year-over-year positive comparison in almost two years. Supply is drying up and demand is strengthening. The S&P/Case-Shiller index jumped .5% in June to return to mid-2003 levels.
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This is still 31% below the high in 2006 but that high may not be the water mark since it symbolized the top of what was considered a bubble in housing prices. The report issued Tuesday August 28 ended a 20-month downward streak. It establishes an upward trend.
Several months ago, the number of houses on the market began to drop significantly as the number of foreclosures began to dry up. Some sellers have also been holding off in hopes of getting higher prices as the market recovers for homes they bought at the height of the bubble.
Foreclosure properties have been snapped up as investments in a strong rental market. And although supply is drying up, it’s just now getting on more equal footing with demand.
This report also showed that the recovery is becoming more broad-based. Before this report, improvement was uneven from region to region.
Analysts say the recent gains are not sustainable at the current pace and may, actually, have been boosted by some parts of the market falling. This would make the improvements look better than they really are.
To see gains on a meaningful volume, more opportunistic selling will have to come into the market. So far, most sales have been from people who have had to sell because of third babies or because of finding employment in a different location.
The homes that are selling are selling at a significant discount. Many are short sales
that have to be approved by the bank holding the mortgage since it is being asked to take less than the house is worth. Some buyers end up walking away from contracts because banks are reluctant to give such approval.
Still, the gains are an encouragement in a lagging economy. The quality may not be great but it’s a significant enough sign that there may be more to look forward to.