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 t
he 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.
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