The housing market in the U.S. has shown signs of a modest recovery in October, and despite being a
ight market, it is raising the prospect of more gains in home prices along with increasing new construction starts. The National Association of Realtors said that although the sales of used homes and condominiums rose to an annualized rate of 4.79 million units in October, it's not a very big departure from the prior two months, but what is promising is that the inventory of homes available for sale has been dropping steadily since last April.Fewer homes on the market could be one reason home prices have been rising and the median price for a previously owned home was up 11 percent from a year ago at $178,600 in October. The current home inventory represents just over a 5-month supply at the current pace of sales, the lowest supply since February 2006 before the housing market peaked and then eventually crashed. As a result, many economists and housing analysts are predicting more gains in home prices if the modest pace of economic recovery continues.
New permits for single-family homes nationwide were up 22 percent from the past 12 months, and permits for multifamily homes hit even higher at 55 percent. Turning to the stock market shows that the prices of exchange-traded funds that invest in home building companies have risen nearly 90 percent in the past year as well. At the same time, construction employment has stabilized somewhat but still remains well below pre housing-crash levels. Economists believe the main reason the for-sale inventory is dwindling is due to the fact that many potential sellers are under water in homes that won't sell for enough cash to pay off their existing mortgage debts.
An important unanswered question still remains for the months ahead in how politicians will resolve the impending "fiscal cliff" of tax hikes and federal spending cuts that are scheduled to take effect in the New Year. The fiscal cliff has the potential to send the US economy back into recession and halt the housing recovery, but most economists are hoping that Congress and the President will reach a deal in time to prevent the worst effects from taking hold.
Credit conditions could change that scenario though if the big banks become confident that home values are stable or rising, the borrowers will have more access to the current record low interest rates. Data from Freddie Mac now shows the average 30-year fixed-rate mortgage rate reached a new record low of just 3.38 percent in October, and the rising home prices have resulted in a near $750 billion growth in home equity over the past year. If the numbers hold and each percentage point of price appreciation translates into an additional $190 billion in home equity across the nation, the most optimistic result could be a $1 trillion overall gain in U.S. home equity by next year.