From purchases and prices to builder sentiment and construction, the U.S. housing market is making consistent gains.
The latest evidence came in reports Monday that sales of previously occupied homes rose solidly in October and that builders are more confident than at any other time in 6½ years.
New-home sales and home-price indexes have reached multi-year highs. And Lowe’s Cos. on Monday reported a surge in net income, a sign that home-improvement retailers are benefiting.
The housing market’s recovery still has a long way to go. But for now, it’s helping prop up an economy that’s being squeezed by a global slowdown and looming spending cuts and tax increases.
Joseph LaVorgna, an economist at Deutsche Bank, estimates that the housing recovery could boost U.S. economic growth by a full percentage point next year. That’s because a stronger housing market would mean more jobs, especially in industries like construction, and more consumer spending.
“Housing could provide a meaningful — and critical — lift to overall economic activity when other growth drivers, like exports, are slowing,” LaVorgna said.
Helping drive the housing rebound is growing confidence among builders. An index of builder sentiment compiled by the National Association of Home Builders/Wells Fargo builder rose to 46 this month, up from 41 in October. It was the highest reading since May 2006, just before the housing bubble burst.
Readings below 50 signal negative sentiment about the housing market. The index last reached that level in April 2006. Still, the index has been rising since October 2011, when it was 17. It’s surged 27 points in the past 12 months, the sharpest annual increase on record.
A second report Monday said sales of previously occupied homes are near five-year highs, excluding temporary spikes in 2009 and 2010 when a homebuyer tax credit boosted purchases. Sales rose 2.1 percent in October to a seasonally adjusted annual rate of 4.79 million, the National Association of Realtors said.
Sales are nearly 11 percent higher than they were a year ago, though they remain below the more than 5.5 million that economists says is consistent with a healthy market.
The Realtors’ group said Superstorm Sandy delayed some purchases of previously occupied homes in the Northeast. Sales fell 1.7 percent there, the only region to show a drop. Those purchases will likely be completed in coming months, the group said.
A key factor fueling the gains is a gradually improving economy, which has increased the number of people looking for homes. At the same time, fewer homes are available for sale. The low supply is helping push up prices.
Only 2.14 million homes were available for sale at the end of October, the lowest supply in 10 years. It would take just 5.4 months to exhaust that supply at the current sales pace. That’s the lowest sales-to-inventory ratio since 2006.
“We built too many homes during the good years, and we have finally gotten rid of that excess,” said Patrick Newport, an economist at IHS Global Insight.
In addition, mortgage rates have hit all-time lows. And rents are rising, making the purchase of a single-family home or condominium more attractive.
The rise in people seeking to buy should support more construction over the next year or two, economists say. More Americans are looking set up their own households after living with relatives or friends in the recession and its aftermath.