How do we know that the housing recovery is real?
One way to answer this question is to look at home prices. As measured by the Federal Housing Finance Agency’s House Price Index, home prices have climbed for eight consecutive quarters, and were up 7.2 percent on the year in the second quarter. According to the S&P/Case-Shiller Home Price Indices, U.S. national home prices are up 7.12 percent on the quarter.
Another way is by looking at sales: according to the National Association of Realtors, total existing home sales — which includes single-family homes, townhomes, condominiums, and co-ops — increased 6.5 percent in July to a seasonally-adjusted annual rate of 5.39 million. Pending home sales, a forward indicator, slipped on the month, but are still up 6.7 percent on the year. NAR projects that total existing home sales will increase 10 percent in 2013 to about 5.1 million, and sales are expected to continue growing through 2014.
A third — and perhaps more holistic — way to answer the question is to look at the level of demand for the myriad of services that facilitate the process of buying or selling a home. Or, to put it another way: look at how many jobs the housing recovery is creating, and you can tell how healthy the market is.
This is the approach that Bill Redfern, founder and CEO of A Buyer’s Choice Home Inspections, takes. The company does what the name implies: it offers home inspection services (pre-sale inspections, radon testing, maintenance inspections, etc.), a business that is attached to the core of the housing market. As a result of its ability to ride the wave of economic growth generated by the recovering housing market, the company has been able to aggressively franchise and increase the number of people it employs.
“With the residential real estate market on the upswing across many regions, there has been a notably stronger demand for professional home inspections,” says Redfern. “Because the level of demand for our services has increased over the past year, the independent home inspection business operators across our franchise are witnessing double-digit increases in profits and a steady increase in business leads and transactions.”
And Redfern’s business isn’t the only one that’s growing. A myriad of businesses have experienced growth thanks to the healing housing market. The recovering housing market has also been an enormous source of revenue for major financial institutions such as Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and JPMorgan (NYSE:JPM), and has supported a wide range of businesses.
But riding this wave of growth can’t be done on autopilot. After nearly two years of strong gains in the mortgage businesses at major banks, for example, the tide appears to be receding.
Interest rates have increased dramatically over the past few months and as a result mortgage origination and refinancing activity has generally been on the decline. The average contract interest rate for a 30-year fixed-rate mortgage edged down slightly last week from 4.80 percent to 4.75 percent, but is still well above the average commitment rate of 3.45 percent in April. This increase in rates and the subsequent decrease in mortgage-business activity has had a material impact on payrolls at many big banks.
“While the market is improving in most places, this country is still in a state of moderate recovery,” says Redfern. “Successfully riding the economic wave generated by the recovering housing market requires attention to detail, persistence and patience… You’re seeing that need for diligence across the real estate market — anyone involved in real estate in this economic climate needs to be willing to do the leg work to make a difference.”