At Long Last, Hope for the Housing Market
For the first time in several years, it looks like the housing market is finally on its way to a real recovery. A variety of factors, including a drop in new foreclosures and an increase in new residential construction, suggest that hope may finally be on the horizon for the economy in general. In California, where the shortage of cheap homes is expected to continue, the outlook is especially promising. As home prices rise, the number of homeowners who are underwater on their mortgages will drop. If this trend continues, a strong housing market may become a reality sooner rather than later.
A Rise in Residential Construction Bodes Well for Housing Market
One thing that economists look at when considering the overall health of the housing market is the number of new homes that are being built. This is a quick and easy way to take the pulse of the real estate market, and it can also give a clear idea about the health of the economy in general. The low supply of newly built homes is finally catching up with demand, which is leading to an increase in the construction of new houses and apartment buildings.
To put the matter into perspective, just consider the number of new homes and apartment buildings that were built at the height of the housing bubble. In early 2006, the number peaked at an incredible 2.2 million homes and apartment buildings. After the bubble burst, of course, that number plummeted. At its lowest point, which occurred right around April 2009, the number had dropped to an abysmal 478,000 new apartment buildings and homes. The number remained fairly flat for some time, but it is finally showing signs of perking up, which bodes well for the housing market in general.
Last week, the Commerce Department had some very encouraging news about new residential construction starts. It announced that the total number in September was 872,000, which far exceeded everyone’s predictions. Indeed, the number was expected to be around 770,000. At 872,000, it is the strongest number since July 2008, when the total was 923,000, and it has improved by 34.8 percent since September 2011. In addition to that, this number reflects the third month in a row of improvement. If this trend continues, the housing market could officially be on its way to a true recovery.
Drop in Foreclosures is Another Positive Sign
One contributing factor to the spike in new residential construction is a simultaneous drop in foreclosures. Since the housing crisis began, foreclosures have been rampant. Throughout the Great Recession, families have taken a beating in terms of financial health. Thousands of people have lost their jobs, and many others have been forced to take major pay cuts. When paired with plummeting home prices, it comes as no surprise that many people have had to give their homes back to the bank.
The numbers in this regard are finally encouraging. Notices of default, which are a leading indicator of upcoming foreclosures, have dropped by 10.2 percent since the last quarter. They are also down by 31.2 percent since the same period last year. In fact, they are at the lowest point since the crisis began. One thing that is definitely helping is the slow but steady rise in home prices. As home prices go up, the number of people who are underwater with their mortgages goes down. In turn, consumer confidence rises, and demand for new construction does as well. More people are willing to put their homes on the market, which helps to strengthen these trends too.
Foreclosures and Other Distressed Properties Clearing Off the Market
Although it’s not true everywhere in the country, foreclosures, short sales and other distressed properties are slowly clearing off the market. It’s especially true in California, where it’s becoming increasingly difficult to find homes at rock-bottom prices. This may not be music to buyers’ ears, but it is extremely good news for the health of the real estate market in general. Homeowners are also thrilled by the news because it suggests that they may finally own something of value again.
After enduring such a long and terrible recession and housing crisis, no one is willing to officially declare that the bad times are finally over. However, it’s clear that we may finally be seeing the light at the end of the proverbial tunnel. In California and many other states, it appears that house prices have finally bottomed out and are on the rise. As foreclosures and other distressed properties vanish from the market, the trend will intensify. Demand for newly built houses will help too. If the number of building permits that are issued continues to rise, especially in the next quarter, there should be no question that the real estate market is finally on the rebound.
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