Application for building permits have increased in April to the highest level since five years. Talk of a house price bubble seems premature.
U.S. house prices jumped by 10.9 % in March, the highest since April 2006. The S&P/ Case Shiller Index said 20 U.S. cities have posted annual gains for the third straight month. The index covers nearly half of U.S. homes. It measures with prices covered on January 2000 and creates a moving average calculated quarterly. Prices in Phoenix raised by 22.5 percent over the past 12 months, the biggest gain among all the cities. It was followed by San Francisco which registered a growth of 22.2 percent and Las Vegas which stood at 20.6 percent. New York City however had the lowest over-the-year increase at 2.6 percent followed by Cleveland which increased by 4.8 percent. The U.S. housing market is recovering steadily encouraged by the job gains and low mortgage rates. Sales of new homes rose to a five year high in April this year. Sales of occupied homes also registered a steady growth. Despite positive market conditions only a small number of homeowners are putting their houses on the market. This has helped lift the home prices.
Application for building permits have increased in April to the highest level since five years. The supply of available homes also increased in April this year but fell short of last year’s increase of 14 percent. Stan Humphries, chief economist at Zillow, a real estate data provider, said that the increase in the Case Shiller Index has been ‘skewed’ higher in cities such as Phoenix and San Francisco, where the demand is higher and supply is lesser. This happened because homeowners still owe more on their mortgages than the value of their homes. However, excluding those markets, home prices are steadily rising nationwide. The housing recovery is also creating more construction jobs and bolstering the U.S. economy. The rise in home prices in the U.S. comes at a time where the two year old pay roll tax holiday has come to an end. This means that each household in the U.S. is burdened to the extent of $ 700 from their annual income.
Millan Mulraine, director of U.S. research and strategy at TD Securities, said the “U.S households are looking well beyond the current economic setback caused by fiscal retrenchment in the form government spending and higher personal taxes”.
The news and signs of growing consumer confidence had an immediate impact on the stock market with the Dow Jones Industrial Average gaining over 106 points and closing at 15,409 and the S&P 500 stock index closed up at 10.46 points at 1,660. NASDAQ went up by 29.74 closing at 3488.89.
The Dow Jones Industrial Average is a pre-weighted average of 30 significant stocks traded at the New York Stock Exchange (NYSE) and the NASDAQ. The S&P is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
Causes for the housing boom?
There has been a steady increase in the availability of the jobs since 2010. This means more purchasing power and families have started to buy again. There has also been a low inventory of homes which are readily available for purchase, as there are no building activities for the past few years. “Rising home prices may begin to alleviate a lack of housing inventory by encouraging more homeowners to put their properties on the market”, said Maninder Sibia, an economist with Economic Advisory Services, in a note to its clients. Another factor pushing up the home prices are the decline in “distressed sales”. There has been a decline in mortgages and foreclosures. Distressed sales are the rapid sale of real estate when the owner can no longer make the mortgage payments. Ed Stansfield, chief property analyst at Capital Economics, said problems remained in the U.S. market. According to him there was an unhealthy reliance on institutional buyers who are buying cheap properties and it remained a difficult market for first time buyers looking for a loan. “Talk of a house price bubble seems premature” he said.