Real Estate Now Leading Recovery

The Mortgage Corner

Can it be that real estate will give a boost to the next stage of the U.S. recovery? Exports, and so manufacturing has stalled due to the China and European slowdown. Multiple indexes show rising real estate prices, as inventories of both market and delinquent properties continue to decline. And consumer incomes have risen of late, so real estate may be a better investment than the 0 percent interest banks are willing to pay these days.

Home prices nationwide, including distressed sales, increased on a year-over-year basis by 2.5 percent in June 2012 compared to June 2011, says Corelogic’s June Home Price Index, which closely follows the S&P Case-Shiller Home Price Index, without seasonal adjustments. On a month-over-month basis, including distressed sales, home prices increased by 1.3 percent in June 2012 compared to May 2012, a huge jump. “The June 2012 figures mark the fourth consecutive increase in home prices nationally on both a year-over-year and month-over-month basis,” said Corelogic.

Graph: Calculated Risk Blog

Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 3.2 percent in June 2012 compared to June 2011. On a month-over-month basis excluding distressed sales, home prices increased 2.0 percent in June 2012 compared to May 2012, the fifth consecutive month-over-month increase. Distressed sales include short sales and real estate owned (REO) transactions.

And Calculated Risk reports that housing inventories have dropped as much as 22.7 percent in one year, according to the National Association of Realtors. “On a seasonal basis, housing inventory usually bottoms in December and January and then starts to increase again through the summer. Inventory only increased a little this spring and has been declining for the last three months by this measure. It looks like inventory has peaked for this year,” said Calculated Risk.

Graph: Calculated Risk

This decline in active inventory is a huge story. The lower level of inventory has to be a major reason housing prices are rising, needless to say. But the rise in personal incomes of late also has to be a factor. Personal income in June gained 0.5 percent, following an advance of 0.3 percent the prior month.  Wages & salaries also showed strength, rising 0.5 percent after a 0.1 percent rise in May.

Graph: Econoday

Lastly, the Labor Department’s June Job Openings and Labor Turnover Report (JOLTS) may be boosting consumers’ confidence. It showed 3.76 million job openings in June, which the Labor Dept. characterizes as “little changed” from 3.66 million in May, but is up from 2.4 million job openings at the low point in June 2009.

Harlan Green © 2012