Housing Market: Is it on the Mend?

home pricesThe housing market is continuing to show improvements in spite of ongoing pressures with home prices. The strength with jobs growth and a declining unemployment rate are helping to attract more buyers to the housing market and the hope is that prices will advance higher. For now, home prices continue to struggle and this means less wealth for consumers to spend on non-essential goods and services. The Case-Shiller 20-city Index showed an average 3.7% price decline across the top 20 U.S. cities after a 3.4% decline in October. The problem continues to be high foreclosures and short sales driving sales and placing a downward pressure on home prices.

Housing starts came in at 699,000 in January, above the 671,000 estimate and the revised 689,000 in December. This reading means that builders are seeing higher demand down the road in the housing market and this is positive. Moreover, the key Building Permits reading, which shows how well the building pipeline is doing, is also improving, with 676,000 permits in January, above the 675,000 estimate and the revised 671,000 in December.

The NAHB/Wells Fargo Housing Market index, an indication of homebuilder sentiment, is at its highest level since May 2010, coming in at 29 in February, but still well below 50. This means there are more builders that see the housing market as poor rather than positive. The last time the index was above 50 was way back in April 2006 before the subprime fiasco.

But with the jobs growth looking better, we could see a corresponding improvement in the housing market. In January, 243,000 jobs were created, with the unemployment rate declining to 8.3%, much better than what the Federal Reserve was expecting this early in 2012.

 The low interest rate environment will continue to support the housing market. The average rate for the 30-year fixed mortgage is at a record low of around 3.91%. This will continue to translate into an incentive to buy homes going forward.

 One thing for sure, the housing market has bottomed out. We are seeing an influx of foreign buyers from Brazil and Canada buying real estate in Florida and other depressed regions.

We are also seeing improved business in home renovation companies.

 The Home Depot Inc. (NYSE/HD), the world’s largest home improvement retailer, reported $16.0 billion in fourth-quarter sales on Monday, up 5.9% year-over-year. And the key comparable same-store sales reading rose a healthy 5.7% in the fourth quarter. The reading for U.S. stores was better at 6.1%. Home Depot also made $0.50 per diluted share, up 38.9% versus the $0.36 per diluted share in the year-earlier fourth quarter. The outlook is muted, however, with the company predicting sales growth of around four percent in 2012.

So, while home prices continue to languish, we are clearly seeing a pickup in activity that will inevitably drive up home prices sometime in the future, but this may not be until 2013.

As I said, a strengthening jobs market will help the housing market. I feel the jobs area is improving, which I discussed in Jobs: Are They Headed Down the Right Path?