Ailing Housing Market Improves in December

Joel Anderson  |

The long string of positive economic news appears to be continuing. While still not the sort of firmly good news many would hope for, housing sales in December made modest gains, giving further hope to those hoping that 2012 will see significant growth in the ailing US economy.

Bad Year Ends with Not-So-Bad Month

While 2011 offered only marginal improvements over 2010, a year that was extremely poor for housing, the final month of the year offered some reasons for hope. The National Association of Realtors announced Friday that sales of previously owned homes jumped 5 percent to a seasonally adjusted rate of 4.66 million. This represented the third straight month of growth and the best rate since January of 2011. Sales for all of 2011 were more than 4.26 million, up only slightly from 2010's 4.19 million and still well below the 6 million figure many economists believe would represent a healthy housing market.

Still, the news of growing figures prompted optimism about the market finally beginning to bounce back. “There’s no denying that home sales are still very low and will remain low for a few years,” said Paul Dales, an economist with Capital Economics. “But after having risen in each of the last three months, including a 5% month-over-month gain in December, it is clear that a housing recovery is now well under way.”

Foreshadowing a Broader Recovery?

The improving housing numbers combined with improving unemployment numbers has some economists pointing to the stirrings of an economic recovery. “With layoffs slowing sharply, hiring rising and consumers’ confidence rebounding, the pre-conditions for a sustained recovery are falling into place,” said Ian Shepherdson, chief U.S. economist for High Frequency Economics. “Sales and starts will keep rising; prices should stabilize, more or less.”

Some Signs Less Encouraging

Others, though, caution that there are still reasons for serious concern. While it appears that the over-supply in the market has at least partially corrected in the short term, some still remain wary of would-be sellers waiting until the market improves. What's more, there remain many foreclosures yet to work their way back into the system.

“That so-called ‘shadow’ inventory has to come to the market eventually and will keep downward pressure on home prices long after a pickup in building and sales activity," said Ellen Zentner, an economist with Nomura. "The improvement in homebuilder sentiment and single-family starts and sales is at least partially due to home builders building smaller and cheaper homes that are more accessible to the average borrower, a necessary adjustment to battle low prices for existing homes and stricter lending conditions.”

Shares of homebuilder stocks mostly traded lower as Toll Brothers (TOL) inched down, Lennar Corp. (LEN) down 3 percent, KB Home (KBH) down 2.6 percent, and the SPDR Series Trust SPDR Homebuilders (XHB) fell 2.5 percent.

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