5 Factors to Watch in a Housing Recovery

Although the housing market has come a long way over the
past year, the recovery is still very fragile. As one of our
Coldwell Banker Residential Brokerage managers put it, the
market takes one or two steps forward, and then one back.

This is often what happens in an economic recovery after
the initial burst of improvement. Rarely do recoveries go in a
straight line, as much as we’d like them to. Federal tax credits
certainly helped bring the market off the bottom, but with
their expiration, the question many economists are pondering
is what – if anything – is needed to make sure the market
doesn’t fall back into a double-dip.

I recently came across an interesting article on
Investopedia.com entitled, “5 Factors to Watch in a Housing
Recovery” which was posted by freelance writer Stephen
Simpson. The article reviews the key factors that Mr. Simpson
recommends should be watched in anticipation of an eventual
housing recovery which is important for the health of the
American economy.

1. Job Growth
“Jobs are the prime mover in any economy. Without work,
people do not have money to spend…housing prices typically
stagnate as people are unwilling or unable to take out
mortgage loans and people typically are not eager to move
into areas with no jobs.”

2. Inventories
Under basic concepts of supply and demand, “It is difficult
to get top dollar for your house if there are three others on
the block just like it and their owners are willing to sell for
less.” It is therefore important to “keep an eye on housing
inventory” and hope for signs of improvement.
According to Mr. Simpson, “When housing inventories are
at less than six months’ supply, prices usually rise. When
inventories are above six months, prices typically fall.”

3. Prices and New Construction
Along with inventory, Mr. Simpson recommends watching
housing prices and the amount of new construction. Mr.
Simpson notes that new construction is “a big marginal
employer” and the lack of new construction may be
“interpreted as an indicator of weak future economic
performance.”

4. Mortgage Loans
Mr. Simpson recognizes that “there will have to be a revival in
lending activity.” If mortgage loans are not available then most
individuals cannot afford to buy.

5. Lumber
Mr. Simpson recognizes that it is not always easy for
consumers to follow the first 4 factors; therefore he has
suggested an interesting strategy: “Commodity lumber
seems to be uncannily accurate in forecasting future housing
performance, generally with a lag of about two to four months.
In other words, if lumber prices start moving up, you can
generally expect to see good news about the housing market
in that two to four-month window.”

No one knows precisely how long it will take the housing
market to return to a more normal level. However, it appears
that some segments of the market are slowly but steadily
improving following last year’s low-point. We saw that
improvement in the entry level last year as bargain hunters
took advantage of attractive prices on distressed properties.
We are now seeing some evidence that the middle and upper
ends of the market are bouncing back.

Million-dollar home sales in the Bay Area last month surged to
their highest level in two years, according to Coldwell Banker
Residential Brokerage’s monthly luxury housing report.

In Silicon Valley, a total of 266 homes sold for more than $1
million in June, up 24 percent from the same period a year ago
and 6 percent from May. It was the highest level for high-end
sales since 288 properties changed hands in July 2008.

In San Francisco, a total of 76 homes sold for more than $2
million during the most recent quarter (from April through
June), up 31 percent from the same period a year ago and
nearly double the 44 properties that sold in the first quarter
of this year.

The resort area of Lake Tahoe also joined in, with 30 homes
selling for more than $1 million during the second quarter, up
58 percent from the same period a year ago and 25 percent
from the previous quarter.

It is also noteworthy that the median sale price held its own
in these three markets. While it was relatively flat in Silicon
Valley, it was up slightly in San Francisco and up sharply in the
Lake Tahoe area. Of course, the market still faces economic
headwinds. Between the expiration of the federal tax credit,
slow growth in the economy, high unemployment levels and
the normal summer slowdown, it’s possible that the market
may pause to catch its breath. But I’m encouraged by the
progress we’ve made so far this year, especially considering
where we were just a year ago.

If you are ready to learn more about the local housing market
including a personal perspective on your own home or
neighborhood, please contact me today .