This week, both new home sales data and the S&P/Case-Shiller’s house price index yielded better than expected results. Annualized sales of new homes rose from 267,000 in May to 330,000 in June, signaling that housing demand was improving.
Meanwhile, the house price index posted a 4.6% increase this May, outpacing the forecast of a 3.9% rise. On a monthly basis, that amounts to a 1.3% uptick, marking its second consecutive month-over-month gain. Back-to-back, baby!
Judging from these figures, it does look like the housing market is starting to get back on its feet. Those worries about a housing slump after the removal of the government’s tax credit program are probably just a thing of the past.
Oops, wait a minute! As much as I’d want to NOT spoil your celebratory parade, I just can’t! A closer look at the housing data would reveal that things aren’t as bright as they seem.
For one, May’s figure was probably too good to be true. Apparently, the annualized number of new home sales was only 267,000 and not 300,000 like first thought. In addition, the increase in home sales experienced in June was actually the second slowest since records began in the 1960’s.
Secondly, although the S&P/Case-Shiller HPI came in with a 1.3% gain after six months of decline, the index still shows that home prices have fallen almost 30% from its peak in 2006.
From the looks of it, the better-than-expected results on the housing data were simply a correction, and not the beginning of a new trend. Home prices are predicted to remain weak all throughout this year and the next, before actually rising by 2% in 2012.
There are rising concerns that we may indeed see – I’m sorry, but I must say it – a double dip in the housing markets! Holy smokes Pip Diddy!
The problem is that there seems to be a huge surplus of about to be foreclosed homes that have yet to hit the market. Sellers are keeping their homes off the market, probably waiting in vain for prices to go up in order to get better deals. Once these sellers decide to just unload their inventory, it could pose a threat to the housing market.
Sellers may become desperate and decide to just sell their homes at 50 cents on the dollar, which could lead to even more falling home prices. What’s more is that all those government tax credits probably just delayed the inevitable adjustment to home prices.
People are keeping an eye on the housing market and you should too. Remember, this whole mess started with the US housing market. If we continue to see more weakness in the housing market, it may be a signal of dreadful things to come.
So much gloom and doom, eh? But all hope is not lost for the US housing market! I daresay the Fed and the government both have enough tools in their toolbox to make sure that the housing market doesn’t crumble again.