Can Home Builders Give the Housing Market a Second Wind?

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source: http://www.flickr.com/photos/wwworks/

source: http://www.flickr.com/photos/wwworks/

Climbing home sales have been a hallmark of the economic recovery in the United States. According to the National Association of Realtors, existing home sales — transactions that include the sale of single-family homes, town homes, condominiums, and co-ops — increased 1.7 percent on the month and 13.2 percent on the year in August to a seasonally adjusted annual rate of 5.48 million, the highest level in about six-and-a-half years.

Broadly speaking, increased sales have been accompanied by increased prices. The national median price for an existing home in the U.S. was $212,100 in August, up 14.7 percent on the year and the 18th consecutive month that the median home price has increased year -over-year. The S&P/Case-Shiller Home Price Indices confirm this trend: the 20-city composite price index is up more than 12 percent on the year and has an annualized three-year return of about 3 percent.

The rally, though, may begin to run out of steam if left unattended. The recovery to date has relied on a steady but anemic recovery in overall economic conditions and was largely made possible by historically low interest rates, and both of these catalysts have been undermined recently.

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