Market Update: It’s Beginning to Look Like a Recovery
The weather has turned abruptly colder for most of the country, but the economy and the housing market are heating up.
Here are the most significant economic developments of the past week.
Breaking ground: The new home market is finally improving, as demonstrated by single-family housing starts—the number of privately owned housing units on which construction has begun. Single-family starts in October were at the second-highest level in more than six years. Homebuilders are encouraged by this increase in activity, as builder confidence also improved this month. The National Association of Home Builder’s Housing Market Index reached its second-highest level since November 2005, which was before the housing downturn began. The index reading is now at 58, which is 7% higher than last year.
Sales are up: We’ve also finally debunked the misleading perception that the pace of sales is declining: October broke the 11-month streak of year-over-year declines in total home sales. In October, we reached an annualized rate of 5.26 million sales, which was 2.5% higher than last year. The pace of existing home sales has increased in six of the seven previous months.
Distressed sales are down: In addition, the quality of sales is improving, with a substantial drop in the volume of distressed sales. If you look solely at good old-fashioned, non-distressed sales, October was up 2.6% over September and 8.2% over last year. It’s beginning to look a lot like a recovery.
Inventory is an issue: Tight supply remains a factor holding back the potential volume of home sales. The inventory of existing homes for sale fell 2.6% to 2.22 million homes, or 5.1 months of supply at the current pace of sales. And while the pace of single-family construction is finally growing again, the growth is not enough to keep up with increasing demand.
The housing market’s positive momentum reflects a substantially improving economy, and critical economic leading indicators point to even more growth ahead.
With the negative drag of foreclosure-induced distress behind us and job growth creating new opportunities—especially for younger households—we can start looking forward to a strong year ahead.
Jonathan Smoke is realtor.com®’s chief economist.