“Glass-half-full” people, take note: Ten of the 20 metro areas comprising the S&P/Case-Shiller 20-City Home Price Index showed improvement in April 2012 compared to a year earlier, according to newly released data. Even the “glass-half-empty” set may find solace in what may be the best news of all – for the housing markets and perhaps even the overall economy – that no cities posted new lows in April, reversing a 7-month trend.
“Housing markets play a key role in the economy,” David Blitzer, Managing Director and Chairman of the S&P Index Committee at S&P Indices explained in a recent webinar on the state of the U.S. housing market. “One of the main reasons that the recovery from the current recession has been so slow is that the housing markets are, at best, finally normalizing.”
During that webinar, Robert Keiser, Vice President of Global Market Intelligence at S&P Capital IQ, indicated that record high housing affordability has set the stage for recovery, but “real recovery in the housing market likely remains years – if not decades – into the future.”
Price is one of the key indicators of the performance of the housing markets, said Blitzer, a notion that speaks to the significance of the monthly Indices. The S&P/Case-Shiller Home Price Indices have been published since 2006, but they include more than 25 years of historical data.
“As of early April 2012, average home prices across the United States are back to the levels where they were in early 2003 for the 20-City Composite [Index] and to mid-2003 for the 10-City Composite [Index], according to the S&P press release. Both Composites recently reached their index level lows in the current housing cycle in March 2012, down approximately 35% from their peaks in mid-2006.
“Record high housing affordability has set the stage for recovery …” – Robert Keiser, Vice President of Global Market Intelligence at S&P Capital IQ
Detroit was the only metro area on the 20-City Index to post a decline in monthly performance, down 3.6 percent from March. Atlanta, which demonstrated improvement on a monthly basis, was down 17 percent from last year. Phoenix was the most improved on an annual basis, up 8 percent from last April.
New Home Construction Still Struggling
Another measure of the strength of the economy is new home construction, which has been struggling in many markets across the country.
Peter Fugiel, Ph.D., a housing and public finance consultant in Chicago, and frequent contributor to MuniNetGuide.com, has seen evidence of the decline in the new home construction. “New home construction has evaporated in many Chicago metro sub-markets,” he says. “The excess supply of comparable – yet drastically more affordable – homes in the area have made it an almost impossible market in which to compete.”
Chicago is not alone. With so many lender-owned properties across the country, new home construction has taken a beating.
But could the tides be turning? According to a joint release issued by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, building permits in May 2012 were up 7.9 percent from April, and up 25 percent from May 2011.
Building permits is a leading indicator, signaling confidence in the economy, although permits do not always result in either housing starts or housing completions, two indicators that represent actual building activity. Housing starts in May 2012 were down 4.8 percent from April, but 28.5 percent up from a year ago. Housing completions in May 2012 were down 10.3 percent from April, but 10.1 percent up from May 2011.
Several Metro Areas Show Housing Promise
The National Association of Home Builders publishes a monthly Improving Markets Index, which monitors housing permits, employment, and house prices and identifies metro areas that have shown positive trends in housing permits, employment and house prices for at least six consecutive months. Newcomers to the June 2012 IMI included Tuscaloosa, Alabama; Grand Junction, Colorado; Fargo, North Dakota; Knoxville, Tennessee; and Dallas, Texas.
“Home prices are on a sustained uptrend in all regions,” according to the National Association of Realtors, which reports that existing home sales rose 9.6 percent in May 2012 compared to a year earlier.
While it may be a bit premature to release the confetti, the reversal of a negative trend evidenced by the April S&P/Case-Shiller Indices is a hopeful sign for the housing markets. And while we wait and see how this story plays out over time, the good news is that housing data is plentiful … a glass more than half full, no matter your outlook.