Home Prices Show Signs of Revival
Spring is typically the season when people shop for houses. Many families like to complete their home purchase by the end of the summer so as to not uproot their children during the school year. And let’s face it: houses just look more enticing when flowers are out. But the real estate bust and economic downturn have made the past few housing hunting seasons rather slow. Some buyers have waited on the sidelines hoping prices had further to drop.
This year looks to be different. Already, falling interest rates, an improving economy and a last bit of economic stimulus are helping the housing market stage a revival. In April alone, sales of existing homes jumped 23% from a year ago, according to the trade organization National Association of Realtors. Sales of new homes rose even faster, up 48% from a year ago. What’s more, a growing number of economists believe the three-year plunge in housing prices is at an end.
For now, though, housing prices, like everything else, remain rocky. According to the S&P/Case-Shiller nationwide index, home prices fell 3.2% in the first quarter of 2010, down from the already low levels where they stood at the end of 2009. And home prices may stay down for a little longer. The continued recent slide in the stock market is hurting consumer confidence and likely to make some people pause before buying a house.
A growing number of economists believe this spring could end up being the start of a sustained rebound in the housing market. The biggest driver of that rebound will likely be interest rates. Though rates were expected to rise this summer, the continuing problems in Europe are driving down rates in the U.S., which is still seen as a safe haven for investors. The result is that mortgage rates have fallen to their lowest point in a year and are expected to continue to drop through the summer. In general, for every percentage-point decline in mortgage rates, houses effectively become 10% cheaper.
A recent study of 92 economists by financial-products firm MacroMarkets found that on average housing prices are expected to drop slightly in 2010 and begin rising again next year. That means that for the first time in years someone who buys a house this spring will most likely see their home appreciate in the next year.