Home prices have made considerable gains in the last four quarters, and the property sector seems the most stable it’s been since the bubble burst. Prices climbed roughly 12% year-over-year in August, with certain housing markets reporting northward of 20% in price gains. We’ve also reached a point where price gains may be stabilizing, and eschewing too drastic of a slowdown, this could further bolster the recovery.
Prominent voices within the world of finance have come forward with supportive words as well. As Bloomberg noted recently, Warren Buffett has said forthright that despite progress, the housing market is far from recovered. Buffett was on the record proclaiming in early 2010 that the housing market would recover within a year or so. While this claim more than halved the genuine recovery time, his prediction was based upon sound fundamentals.
Buffett centered his projection upon the dual motivators of the growing demographic of potential homeowners and limited home inventory. The further lay out the market technicals, borrowing costs remain near record lows. While there’s been persistent concern that rising mortgage rates might turn away young homebuyers, mortgage rates recently hit a four-month low. The disappointing returns from the latest job reports have motivated investors to gravitate toward U.S. bonds, causing the average rate for a 30-year fixed rate mortgage to drop to 4.13% the week ending October 24.
So Where’s the “Caution” in this Optimism?
The Bloomberg report furthers quotes Buffett as stating forthright that pricing is clearly not at an equilibrium point. Assuming current trends persist, there’s a chance equilibrium might be reached within the foreseeable future. Granted, we’ve reached a complicated turning point where recovery in the housing market is no longer proceeding at a flawless upward trajectory. According to figures released from the Department of Commerce, new U.S. home sales increased 7.9% to a 421,000 annualized tally in August, while the similar figure from July represented a rate of 390,000. While these are still promising totals, they’re also the weakest two-month period recorded thus far in 2013.
As I noted in a prior post, the housing market has entered a phase where price increases will have to moderate within reason. For home purchases to continue nationwide at a steady pace, property values will not have accelerate to the point that they scare away young professionals. Realtors in some of the country’s most populous markets are apprehensive that we might see a wide default towards renting over buying. While the factors that would help stabilize property values are inherently complex, keeping sales momentum strong without over inflating home prices seems the most important balancing act the housing market has to sustain.
Photo: trackrecordWarren Buffett Cautiously Optimistic About Housing Market by Harrison Stowe