May 2011 Update

Is the housing market really starting to recover? Some say it is and some say to watch out. The facts are that Pending and Existing Home Sales are in an uptrend month-over-month for the past three months. Jobs are continuing to improve which is usually a good sign for the market, and interest rates look like they might start to hike. With these things in mind, how will they separately affect the housing market?

Well....let's first look at Pending Home Sales. The Pending Home Sales Index(which measures homes under contract, not closed transactions) has seen an increase month-over-month since January of this year, and an overall month-over-month increase for 9 of the past 12 months. In March, the PHSI saw an increase of 5.1% from February. The South saw an increase of 10.3% from February. Although we are experiencing an increase month-over-month in the index, the index is down year-over-year from March of 2010. The reason for this is because of the inflated demand of consumers rushing in to qualify for the Homebuyer Tax Credit last year. The index is down 11.4% from March 2010 nationally, and was down 10.5% for the South. Now that the tax credit is no longer a factor, it is safe to say that the growth that we are seeing in the index is natural and healthy.

Existing Homes Sales are also on the rise. Existing Homes Sales (which exclude newly constructed homes) have been in an uptrend since June of 2010 as well. March 2011 Existing Home Sales were up 3.7% from February 2011 nationally and up 8.2% in the South. From March of last year, Existing Homes Sales were down 6.3% nationally, but only down 1% in the South (once again due to the inflated Homebuyer Tax Credit demand).

Two other factors that will have a significant effect on how the housing market will play out this summer are employment growth and interest rates. Employment growth has picked up recently and if it continues, will help to lift the housing market. Which leads to the next factor being interest rates. As the Federal Reserve has pumped money into the economy, we have started to see the effects of inflation creeping into the economy. With the Fed backing off of its monetary efforts, employment continuing to grow, and inflation rising, the Federal Reserve will have to raise interest rates to keep inflation from getting out of control. As interest rates rise, mortgage rates will rise and you will see more buyer's come off the fence and jump into the housing market in fear off not getting a lower rate.

Taking all things into consideration, job growth will continue to be the most important factor to watch. If people do not have a job, they do not have money to buy a house.