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Capital Economics Sees Improvement Ahead for Housing

Noting some recent strengthening in demand in the housing market, ""Capital Economics"":http://www.capitaleconomics.com/ suggests housing prices ""are close to, or already through, their trough,"" and recovery will continue through the coming months.

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While acknowledging the decline in home sales in March, Capital Economics' analysts remain optimistic due to the recent increases in pending home sales. The ""National Association of Realtors'"":http://www.realtor.org/ latest ""Pending Home Sales Index"":http://www.realtor.org/news-releases/2012/04/march-pending-home-sales-rise-market-recovering in March reached 101.4, its highest level since April 2010.

""The rise in pending home sales suggests that March's decline in actual sales is not the start of a weaker trend,"" said Paul Diggle, property economist at Capital Economics, in a monthly report released Wednesday.

Recent data on mortgage applications also point toward a strengthening market. Applications rose by 3.8 percent over the month of April, according to data cited in the report.

However, with persistently tight credit conditions, Diggle reports that the increase in home sales reported in the first quarter of this year ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô 4.6 percent ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô can be attributed to cash-buyers.

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This also explains why while sales increased, homeownership rates have not. In fact, the ""Census Bureau"":http://www.census.gov/ reported the homeownership rate in March fell to a 15-year low of 65.4 percent.

Affordability continues to rank high, with the National Association of Realtors calculating ""affordability"":http://www.realtor.org/topics/housing-affordability-index/data at 206.6 in April.

An affordability index score of 100 means a median-income family has exactly enough to purchase a median-priced home with a 20 percent down payment if they spend 25 percent of their income on their mortgage.

Furthermore, Capital Economics insists that even with closing costs, home maintenance, and property tax, owning a home is ""likely to be cheaper than renting over a typical holding period of seven years.""

Capital Economics cites the ""S&P Case-Shiller"":http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us---- Indices and ""FHFA's"":http://www.fhfa.gov/ home price report, which reveal that homes are undervalued. Case-Shiller suggests homes are 10 percent undervalued, while FHFA reports homes to be undervalued by 4 percent.

Broader economic indicators such as GDP and employment rates have not been promising over the last month. GDP growth slowed from 3 percent in the fourth quarter of last year to 2.2 percent in the first quarter of this year, while hirings also slowed.

""Recent data have reignited fears of another sharp summer slowdown in economic growth,"" Diggle stated. ""But we think that the recovery will hold up.""

The greatest unknown right now seems to be the impending effects of the recent robo-signing settlement, which Diggle says ""is likely to prompt an increase in foreclosure activity,"" which could bring a rush of inventory to the market and upset the meager signs of recovery we are now seeing.

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.
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