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Real Estate Outlook: Mixed Bag

Written by Carla Hill on Sunday, 31 July 2011 7:00 pm
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This week's housing news is again mixed amid reports of declining housing starts and positive monthly home price movement.

According to the U.S. Commerce Department, the sale of newly built, single-family homes fell 1 percent in June.

Regional declines were seen in both the Northeast and West, while the Midwest rose 9.5 percent and the South rose 3.4 percent.

"June's sales numbers illustrate how the fledgling housing and economic recovery go hand-in-hand," said NAHB senior economist Robert Denk. "Improving confidence in the broader economic recovery -- in particular, solid job growth -- will bring buyers back into the housing market. But as policymakers debate major changes to the housing finance system, higher downpayment requirements, reducing conforming loan limits and whether to tamper with the mortgage interest deduction, this only fuels consumer uncertainty and keeps the housing market recovery from gaining any real momentum."

The current debt talks in Washington will have a marked affect on the economic recovery. According to the New York Times, the affect on housing is tied to interest rates if the United State credit rating is downgraded.

Cameron Findlay, chief economist at LendingTree.com, reported that after a downgrade, interest rates would be expected to rise. Once the debt issue is resolved, however, the rates should return to their current level.

Home prices were on the rise in May, though, at least according to the latest Case-Shiller Home Price Indices released last week.

The 10- and 20-City Composites were up 1.1% and 1.0%, respectively, in May over April.

The only cities not seeing positive movement were Detroit, Las Vegas, and Tampa. Phoenix was unchanged. The stalled recovery becomes more apparent when one looks at the year over year numbers. David M. Blitzer, Chairman of the Index Committee at S&P Indices, reports, “While the monthly data were encouraging, most MSAs and both Composites fared poorly in annual terms. Nineteen of the 20 MSAs and the two Composites posted negative annual growth rates in May 2011."

Washington, D.C., was the only MSA to see a rise in home prices. It is currently up 1.3 percent. The hardest hit market remained Minneapolis, which is still down 11.7 percent from 2010.

Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, NV, reports that new-home sales are in a holding pattern. "This reflects what we are hearing from builders in the field, who continue to see uncertainty in the marketplace and are reacting accordingly by keeping inventories at a record low. With inventories at razor-thin margins, any uptick in demand will generate increased building activity in the months ahead."

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