Long the source of US economic woes, the housing market is slowly recovering and in many ways is leading the American economy back to health. So much so in fact that according to CNN Money some experts predict that we may be on the verge of another housing boom.
A look beneath the surface reveals that the signs are all there. New home construction has made some important gains recently, with October marking the highest level in new home starts in four years. That month also saw an equally strong increase in contract activity, with the number of signed real estate contacts for existing single-family homes rising by 5.2 percent. Foreclosure rates are down and projected to continue falling, while mortgage rates are approaching record lows nationwide.
Construction is the key sector, leading with the strongest gains and stimulating the most economic growth. Many experts project that the new home construction will grow by 20% annually for the next two years, with some believing that it could move to 1.5 million homes a year. This is the magic number, representing a healthy level of growth as measured by pre-bubble standards. Stocks in related sectors, including manufacturers of drywall, flooring, and kitchen and bathroom fixtures, have all more than doubled this year.
The Climb Back to the Top
The numbers look good, and there are reasons for optimism. While some voices in the industry call for caution, suggesting that the ongoing housing recovery will produce modest economic and job market gains, most foresee a return to fiscal health. Barclays Capital, a major player in the industry, recently released a report projecting that home prices could be back to peak levels as soon as 2015. A rebound in new home construction, coupled with housing prices rising between 5% and 7.5% annual, makes the industry a sound investment. “In our view, the housing market had undergone a dramatic over-correction during the prior five years, resulting in pent-up demand for housing purchases that would spark a rapid rise in housing starts,” said Stephen Kim, a Barclays financial analyst.
This good news spreads beyond the housing industry. By stimulating related industries, including construction materials and investment in rental properties, the new housing boom could become the proverbial rising tide that lifts all boats. “That turn in the [housing] market is occurring now and it should become a boom by 2015. It will be powerful enough … to lift the entire U.S. economy,” predicted Roger Altman, former deputy Secretary of the Treasure and current chairman of Evercore Partners, in a recent Financial Times column.
The future is always uncertain. But if the numbers are right, good times may lie ahead for housing.
Interested in learning more? Read the full article here: http://money.cnn.com/2012/10/12/news/economy/housing-boom/index.html