United States - Housing Market In Recovery Phase

CEIC Macro Watch: The US housing market has been dismal over the past few years as its housing bubble burst and mortgages became unsustainable. The median prices declined from a peak of USD230,900 during the peak of the bubble in 2006 before hovering between USD150,000 to USD180,000 from August 2010 to April 2012. However, more recently, there have been signs of revival in the housing market as evidenced by rising prices. The housing market has seen significant increases in home valuation, as measured by two main house price indices compiled by the Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal Housing Agency (FHFA). The Freddie Mac and FHFA House Price Indexes rose by 6.4% year-on-year (YoY) and 5.6% YoY respectively during December 2012, their strongest recorded growth rates since July 2006. Despite rising house prices, the impact on housing affordability has been relatively muted. The housing affordability index, which measures the capability of a family to purchase a median priced home (higher index value indicates higher affordability), currently stands at 206.2 points as of February 2013, from its trough of 101.0 points during July 2006, (representing a compound annualised growth rate of 11.45%). Higher affordability has been attributed to increasing median family income from improved job creation (median income rose to USD62,254 as of February 2013 from USD61,603 during February 2012), and a lower qualifying income required for housing loans (the qualifying income has declined significantly from its peak of USD38,928 during June 2009 to USD30,192 as of February 2013), among other factors. Other forces driving the market include the relatively low number of housing vacancies; vacant housing units as a proportion of total housing units declined to 13.48% as of the fourth quarter of 2012 compared to above 14% from the first quarter of 2008 to the third quarter of 2011, suggesting increased demand for houses in the market. The housing market plays a vital role in the US economy as housing expenditures subsume approximately 28% of the household budget, the largest single expenditure. Increased participation in the housing market suggests rising consumer confidence. With its significant role in the economy, the recovery of the housing sector suggests that US economic prospects are improving. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. By Adrian Dela Cruz - CEIC Analyst Back to Blog
2nd May 2013 United States - Housing Market In Recovery Phase

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