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Good News on the Housing Front

According to an August 26th Bloomberg report by Shobhana Chandra, new home sales increased by 9.6% in July – the most since February of 2005. The gain, due in large part to historically low interest rates, incentives for first-time buyers and lending support from the Fed, translates to an annualized pace of 433,000 units. It also represents the 4th straight increase in new home sales, following an equally impressive 9.1% gain for June. Perhaps even more importantly, the number of houses for sale dropped to the lowest level in 16 years.

All of this positive data lends credence to a growing belief that the housing market is not only stabilizing but may actually be in the beginning stages of a rebound in certain areas. The old adage that real estate is all about location, location, location still holds true with respect to the prospects for a recovery in the decimated residential real estate market. Different regions will recover quicker than others while certain areas have already started to recover. For example, states such as California and Florida still standout as areas struggling with their own respective rebounds while a state such as Texas already appears on its way to a rebound.

If the national residential housing market continues to improve, consumer confidence will likely improve as well seeing that a large percentage of household net worth is determined by the value of the household’s primary residence. While housing market values do not translate into immediate, liquid net worth, they do have a very important psychological impact on the U.S. consumer. This change in psychology could ultimately lead to a change in consumer spending patterns. Increases in consumer spending are needed in order for a meaningful and sustainable U.S. economic recovery to start to take form.

 

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