The S&P Case-Shiller 10-city home-price index rose 1.2% in May, compared with April. Compared with a year ago, the 10-city index rose 5.4%. House prices began to rebound in April 2010, due mostly to the federal tax credit which expired at the end of the month.
Prior to that April bounce, prices had fallen for six consecutive months following a bit of a rebound in the summer of 2009 as the economy began to show some signs of life. The catch to today’s announced rise in home prices is whether or not prices will continue to rise.
That does not seem likely. In the first place, the part of the May gain not attributable to the expiring tax credit is mostly due to an expected seasonal uptick. There is no convincing signal that home prices are recovering in any sustainable way.
New home sales for June rose nearly 24%, but it was still the second worst month on record for new home sales. Existing home sales in June actually fell more than 5%. Foreclosure rates are also expected to rise, adding even more inventory into an already glutted market.
Amazingly, builders are cranking up the machinery again to build more housing. The Wall Street Journal refers to a report by housing market research firm Metrostudy that annual single-family housing starts increased by 2.1% in the second quarter of 2010 compared with the second quarter of 2009. That may seem small, but Metrostudy notes that the quarterly start rate is up more than 29% from a year ago, and that is definitely not small.
There are several contributing factors to this growth, but Metrostudy says that the “production increase is the result of the housing industry slowly and painfully getting rid of its excess inventory. As this has occurred over the last three years, we now find that, in many markets, we do not have a sufficient supply of new single family detached homes for sale to meet existing demand, even in this terrible economy.”
Single-family, detached houses are in demand; multi-family dwellings are not. Las Vegas has a finished vacant housing inventory of 18.3 months of supply. A normal inventory supply is 2.5-3.5 months. When Metrostudy backed out the multi-family housing products, Las Vegas’s supply of single-family houses dropped to 2.4 months. That is a tight market, and that’s why home builders are getting busy again.
Now, all that buyers need is financing and a secure job.
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