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Is Real Estate Ready for a Nap?

Q3 real estate sales were strong; Q4 looks good too, but ...

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While breaking down the real estate market three months ago, I noted that conditions were improving and were likely to continue that way into the third quarter, despite some overall problems in the industry.

That good feeling has now been confirmed by several recent measures.

This week’s S&P/Case-Shiller Home Price Indices of 20 cities nationwide was up for a sixth consecutive month, edging ahead 0.4%. It was about a half-percent lower than economic forecasts had expected; however, national home prices were up 1.2% from the previous year.

David Blitzer, the chairman of the index committee at Standard & Poor’s, was quite positive, stating, “All in all, we are more optimistic about housing. Upbeat trends continue.”

Plus, last month, the S&P/Case-Shiller Home Price Indices showed that all three headline composites (National, 10 City and 20 City) ended Q2 with positive annual appreciation rates for the first time since summer 2010.

Also this week, the Federal Housing Finance Agency mirrored the S&P report, saying that home prices rose for the seventh consecutive month in July, by 0.2%.

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While these numbers were not huge, the fact that all three composites increased was a notable and positive event. The chart below shows the long-term Case-Shiller trend for all three composites. You can see that it bottomed in 2009, and after another small pullback into negative territory, the trend is moving higher again.

Also this past quarter, we saw improvements in the sales of existing homes and condominiums. August resales were 7.8% higher than July, and total sales were the highest since May, 2010. Many Realtors are saying this year will be the strongest for sales since 2007.

Much of the credit for the strong sales is going to near-record interest rates in the mid-3% range for 30-year loans. However, the irony is that almost one-third of the resales in August were purchased with all cash — so interest rates are less of a factor than one would expect.

Perhaps buyers are now so conditioned to low interest rates that it no longer excites them. But when people become complacent, it usually takes a spike in interest rates to spur more home buying, as buyers try to lock in their purchase before it becomes more expensive.

New Construction Also Improves

August new home sales actually were down 0.3% from July, but prices increased and now are at five-year highs. More importantly, new construction sales for August were 27.7% above August 2011 results.

Single-family home starts also were strong, up 5.5% from July to August, but multi-family starts fell by a similar margin. Still, multi-family construction continues to outweigh construction on single-family homes.

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