Existing home sales rose to a 4.79 million-unit, annualized rate in October after being revised down for the month of September. Sales in the Northeast fell slightly, while gains were posted elsewhere in the county. Superstorm Sandy was believed to have only a modest impact on sales in October, despite the fact that the weakness was concentrated in the Northeast. Much of the disruption associated with Sandy occurred in November. Eventually Sandy will boost housing and rental demand, as people attempt to rebuild and in some cases actually move, as they clean up after the storm.
First-time buyers remain a large, but smaller-than-average share of the market than one would expect, given record affordability. Ongoing credit market tightness remains an obstacle for first-time buyers, along with a growing mountain of student debt. Households with members under the age of 35, the bulk of first-time buyers, are seeing the largest rise in student loan debt, with some loans well over the $100,000 level upon graduation.
Investors represent a growing share of the market, accounting for many of the all-cash deals. The supply of both distressed and turnkey homes on the market, however, continues to shrink. It makes more sense for home owners to invest in upgrades and additions instead of selling their homes, now that prices are on the rise again; they expect to reap more benefits from upgrading than trading up in a market where home values are still so far from the peak.
The advantage of tight inventories is the upward pressure on prices, which remain up at a double-digit pace from a year ago. The National Association for Realtors (NAR) estimates that the rebound in home values has added back $760 billion to real estate equity, which still leaves us in the hole from the 2005 peak, but it is a move in the right direction. Indeed, rising housing prices are a game changer, as homes still represent the largest asset for most households; this is a major factor supporting consumer confidence. The key is to keep housing prices on the rise, which is possible if we can avert the fiscal cliff and come up with a more sustainable and credible debt reduction plan. Those are currently two very large “ifs.”
Separately, the home market index provided by home builders jumped to 46 in November from 41 in October, which suggests that tight inventories are finally spurring construction activity. Sandy also likely had an impact on the builders’ index, given the sheer volume of properties destroyed by the storm.
Bottom Line: Housing is finally showing signs of healing after a prolonged illness. We still have a long way to go, but it has reached a critical shift in momentum, if allowed to continue; the choice is in the hands of our elected officials, and the clock is ticking.