Housing Market is Getting Better, Or is It?

Is the housing market ready to rebound? Depending on which statistic you want to believe, it may be, or it might not be. Let's look at some things.

First, on June 16th, the Commerce Department came out with a statistic that said housing starts were up 17%, a reversal of fortunes that have dogged the industry for more than four years. They believe that lower prices and tax incentives are attracting buyers.

But are lower prices and tax incentives attracting buyers? Home sales in both April and May were relatively flat, May even a little lower than April, while home prices were still declining across the board. Prices have been low for at least two years now, drastically low over the last 9 months, and though the tax credit was just signed in February, there was a similar tax credit last year from the Bush Administration of $7,500 that should have sparked sales, but didn't.

Therefore, we can conclude that it's got more to do with other factors than housing prices or tax incentives. Things like unemployment, the cost of energy rising, and the unstable banking situation that's keeping people holding on to their money just a little while longer. That, plus right now 1 in 8 homes are either in foreclosure or have owners who are behind on their payments.

That, and mortgage rates are climbing once again. They're now up around 5.5%, when only a few months ago they were hovering around 4%. The federal government is looking to find ways to bring the interest rates down again, such as purchasing debt, but with other things getting ready to hit banks, including the possibility of merchants negotiating rates directly with Visa and MasterCard, which will possibly take revenue out of the pockets of banks, it's going to be a hard sell.

Still, there are some positive numbers to look at. For instance, housing permits rose 4% from the previous month. Construction of single-family homes rose 7.5%, the third straight monthly gain. Work on multifamily homes, such as townhouses and apartment buildings, jumped 62%. So those are good numbers. Not so good is that home starts are still down 45% from the same time a year ago.

Also, investors are starting to believe in home builders again. Shares are trading higher, and the Dow Jones U.S. Home Construction Index is up 2.21%. Even with that, some analysts are worried that increased construction could add to already-elevated inventory levels, devaluing home prices.

The numbers are dichotomous at best, but comparing them to what was going on six months ago, they are improving; nothing wrong with that.

By Paul Esobedo

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