Turning Point for Housing?
By TJ Kim
August 29, 2012
Since the housing market plummeted in 2008 – 09, the FOMC has kept the Federal Fund Rate nearly zero in an effort to stimulate consumption and investment. The low borrowing costs among banks eventually resulted in the record-low mortgage rates. After almost three years, we finally are seeing some improvements, perhaps a tipping point for the housing market into a bullish state.
This Tuesday, Standard and Poor’s released the Case-Shiller Home Price Index for the month of June. The data came out positively with the National Composite up 1.22% and the 20-City Composite up 0.50% on an annual basis. All the composites of the index surpassed their respective consensus by at least .4%.
The positive reading in the S&P Case-Shiller HPI was in line with other home price series such as CoreLogic, and FHFA, confirming the upward trend in the industry. The economists from Deutsche Bank wrote in their Global Markets Research,
“Thus, the developments in the June C-S data provide important corroboration that house prices are finally turning higher.”
Moreover, this year’s rising trend in home prices may sprout significant improvements in Consumer Spending and Investment, both of which play a key role in the GDP growth.
“This is already having a significant impact on households’ balance sheets, and in turn it will provide support to consumption trends over the medium-term.”
While the recovery in the housing sector strengthens consumer confidence in spending and investing, other macroeconomic factors still cast doubt on the overall progress in the economy. The Unemployment Rate is still far away from dropping below the 8% level, and the fiscal stimulus program by the Fed has not been so effective in encouraging spending and investing activities.
Hopefully, the recent advances in housing and automotive would resonate through other sectors and ultimately the GDP in the long run. Although the light of optimism from the recent release of Home Price Indices provides some reliefs to homeowners and others related to the industry, it did not upturn the 10-Yr U.S. Treasury Yield heading downward at 1.63%.
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