Housing Better, Still Not Normal

      By Kathleen Madigan

Housing continues its slow creep toward stability. Normalcy is a long way off.

The National Association of Realtors announced July sales of existing homes rose to an annual rate of 4.47 million, close to expectations.

Interestingly, the NAR says sales could be even higher: “The market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions.”

What would be normal? The NAR said current demographics would support existing home sales in the 5.0-5.5 million range if conditions were optimal.

But of course, conditions are not. First-time and move-up buyers are restrained by tight lending standards and weak job growth.

Investors are stepping into the breach. Their purchases of homes reflect the shift from owning to renting among U.S. households. It’s a lifestyle change triggered by high unemployment, stagnant incomes and tighter mortgage conditions, and one that will hang around for a few more years.

In July, investors bought 16% of homes sold. That’s on the low end of their share of sales over the past two years but that’s not because of less interest.

Instead, it’s because speculators are finding fewer bargains to buy. Distressed homes–foreclosures and short sales sold at deep discounts–accounted for 24% of July sales, down from 29% a year earlier.

Fewer cheap homes, in turn, helped to push up the median price of the existing homes sold. It rose to $187,000, a 9.4% jump from year-ago levels. Better prices should draw more homes onto the market.

“Persistent news of a solid floor in home prices should help the recovery in organic turnover as selling conditions continue to improve,” say economists at Credit Suisse.

Sales are sales, so investor interest helps overall housing demand. But the financial lift to the average U.S. homeowner may be less than the price data suggest.

Since the jump in the NAR median price reflects a change in the mix of homes sold, homeowners in a community with few foreclosures aren’t seeing their home equity rising at nearly double-digit rates. Home price indexes that adjust for housing mix are showing no gain in prices.

Consequently, U.S. homeowners on average won’t see their real-estate wealth increase by much. Weak wealth growth will remain a drag on consumer spending.

However, expectations for only modest gains in consumer spending is why a stable housing market is good news for an economy that needs all the positive trends it can get.

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