Housing rebound gains strength

After enduring a worse slump than in the Great Depression, US house prices are on the mend. According to the Case-Shiller index, prices in the 20 biggest US cities edged up for a sixth successive month in July and were 1.2% up on July 2011. That’s the strongest year-on-year advance in two years.

Sales of existing houses have reached a 27-month high. Single-family housing starts are at a 28-month high as confidence among homebuilders improves: it is now at a six-year high.

What the commentators said

“The housing recovery is looking better and better,” as Steven Russolillo put it in The Wall Street Journal, and this rebound looks sustainable. Mortgage rates are at record lows and the Federal Reserve’s quantitative easing programme, which will see the central bank buy mortgage bonds, is set to keep them there.

Houses are still historically cheap relative to incomes. The gradual improvement in the labour market, along with an uptick in bank credit, is also fuelling demand. Meanwhile, at the current pace of sales, it would take six months to sell the listed supply of houses, down from eight months a year ago. Six months’ supply generally points to a balanced market.

Still, don’t expect prices to rocket, said Nick Timiaros, also in The Wall Street Journal. It’s still hard to qualify for a mortgage and many households remain in negative equity, crimping demand. Foreclosures are also still high, so supply isn’t going to plummet. Still, the steady housing recovery bodes well, said Chris Williamson of Markit.

As house prices rise, consumers will feel richer, which will shore up consumption. Thanks to housing, agreed Deutsche Bank’s Joe LaVorgna, America’s “modest” economic expansion should remain on track.

Merryn

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