A Turn for the Better
Does it feel like the economy is doing better? Are you seeing signs that give you hope for a better future? Have we hit bottom and are now starting to climb up out of our doldrums?
At a national level, there are signs that we’re doing better. In the housing sector, the usual indicators are pointing toward a more positive up tick.
One of the signs of how well our economy is doing is a look at new home inventories. This is defined as how many new homes, nationally, are still on the market, as compared to the previous month and the previous year. Through April 2009, the number of newly built single-family homes on the market shrank to 297,000 units, which is down to their lowest level since May 2001. This is a good thing.
The number of sales of new homes is an excellent indicator of consumer confidence. It’s the first time since May 2001 that this number dipped below 300,000. The number of new home sales has dropped slightly and steadily for the last two year. This continued reduction in the new-homes inventory helps bring supply in line with demand, which is an important step toward the market’s recovery. A leading economist said that he expects the pace of new home sales to bounce along the bottom a bit before picking back up toward the end of the current quarter.
Coupled with this is something called builder confidence. Builder confidence in the market for newly built, single-family homes improved for a second consecutive month in May to the highest level since September of 2008.
What is happening here is that builders are responding to what they perceive to be some of the best home buying conditions in a very long time. Buyers are not likely to get a better deal in terms of mortgage rates than what is available right now. Combine that with the affordable prices, the large inventory of homes, and the $8,000 tax credit for first-time buyers that are now available, and you end up with a perfect storm of events leading to a strong summer buying season nationally.
Speaking of the $8,000 tax credit, the Department of Housing and Urban Development recently stated that they would allow first time home buyers to use this new tax credit at the closing table. This is great because the first-time home buyers can overcome a big hurdle when purchasing a new home: having enough cash for a suitable down payment.
Nationwide housing affordability jumped 10 percentage points during the first quarter of 2009 to its highest level since the series began 18 years ago.
Wells Fargo releases a quarterly report called the Housing Opportunity Index (HOI), which is a measure of the percentage of homes sold in a given area that are affordable to families earning that area’s median income during a specific quarter. The HOI showed that 72.5 percent of all new and existing homes sold in the first quarter of 2009 were affordable to families earning the national median income of $64,000, up from 62.4 percent during the previous quarter and up from 53.8 percent during the first quarter of 2008. Locally, the Hagerstown, MD/Martinsburg, WV, area had an HOI of 77.1, up from 40.4 in the first quarter of 2006.
Another national indicator is the number of housing starts. Production of single-family homes edged upward in April as builders responded to improving conditions for new-home buyers. Single-family housing starts rose for a second consecutive month in April, posting a 2.8 percent gain to a 368,000-unit pace for the month. At the same time, issuance of single-family permits, which can be an indicator of future building activity, rose 3.6 percent to 373,000 units.
What we’ve seen historically is that housing has always been the gas that runs our national economic engine. The leading housing indicators are pointing toward an excellent summer nationally for home buying. Consumer confidence is up in the housing sector, and the summer season is always the season when we see the most sales, as buyers try to settle before the next school year begins.
Let’s hope that the other areas of our economy begin improving also.