posted on 10.27.14

Is the housing market in trouble? Housing is one sector of the economy that has yet to fully recover to pre-recession levels. Over the last 12 months there have been 978 thousand housing starts compared to the 12-month high of 2,084 in early 2006. A more normal “healthy” annual level is 1,500 – 1,600 thousand. Housing starts are growing at a decent 9.3% pace. Existing home sales peaked with an annual total of 7,080 thousand in 2005. The current 12-month total is 4,892 thousand. Even though there is still a long way to go for a full recovery, yr/yr growth for existing home sales has dropped to -2.5. This weakness is due to a changing marketplace, and not a sign of trouble.

The housing market has gone throught several stages of recovery. First, the Housing and Economic Recovery Act of 2008 provided a tax credit to qualified first-time homebuyers. This program gave a boost to the housing market when it was most needed. Next, low prices due to foreclosures increased sales for existing homes. Now there are fewer foreclosures to lure investors and we are returning to normal market forces. Low mortgage rates should be boosting sales, but banks are reluctant to lend. This could be because they are acting responsibly to avoid another collapse or perhaps they simply do not want to have a large portfolio of low-interest loans when rates start to rise. Hence the current slowing in existing home sales.

To see the full report with supporting graphs, log in to the MTI Members Only Area and click on DeWolf Sept. 2014 Economic Report.  If you have any issues logging in to the members only area, contact MTI at info@heattreat.net.