Into the spin zone
It’s all about the spin, whether you’re talking about politics, negotiating with your 14-year-old about appropriate school clothes or analyzing real estate sales numbers. If the facts don’t support your argument, just give it a little nudge into the spin zone.
According to recent statists, the U.S. housing market has not delivered the lift to the economy during the past year that economists predicted. According to the Standard & Poor’s/Case-Shiller home price report released the last week in December prices nationwide increased only 4.6 percent for the year that ended October 2014. This was down from 4.8 percent in September and far below the 10 percent plus gains that we were seeing in the first quarter of the year. Also, the National Association of Realtors estimates that 2014 sales will ultimately end up below the 2013 level, the obvious wrong direction.
However, many economists, including Stan Humphries, the chief economists of the real estate data firm Zillow, indicated that slower price growth should be helpful down the road for the economy. When prices of homes rise at levels closer to wages, more people are usually able to buy homes.
He goes on to say, “A slower moving housing market is inherently more stable, more balanced between buyers and sellers and more sustainable over the long term.”
The spin doctors feel that the slowing trend is positive for this year’s housing market, indicating that price appreciation of about 5 percent is closer to a “sweet spot” where more buyers are able to purchase a home and current owners can still accumulate housing wealth. This balance will presumably avoid a price bubble triggering a financial crisis similar to the one in 2007. In addition, those in the economic know feel that 5 percent appreciation is a healthier market, encouraging first time buyers who are frequently uncomfortable with sharply escalating appreciation rates.
Spin or not, I’m actually OK with a modest 5 percent appreciation rate. I agree that a slower moving marketplace is healthier and does not allow for the frenzy that home buyers were subjected to when prices hit their peak in 2006. After 2006 home prices nationwide fell almost one third before they began to rebound in February 2012, rising almost 25 percent through October of 2014, according to the Standard & Poor’s/Case-Shiller index.
So a leveling off of pricing combined with still very low interest rates, the end of December hit a 3.83 percent rate for a 30-year, fixed-rate mortgage, will provide affordability to many buyers. According to the National Association of Realtors, during 2014 first time buyers only accorded for 29 percent of existing home sales. This is less than the historical norm of 40 percent. Therefore, getting new blood in the market is essential, so that existing homeowners are able to sell their property and move on or up keeping the cycle going.
Never-the-less all real estate is local, and what’s happening in and around major cities may not be what more rural areas are experiencing. The Standard & Poor’s/Case Shiller index, which analyzes 20 cities and regions around the country places the Tampa region at a 6.17 percent appreciation rate from October 2013 to October 2014.
Rose colored glasses aside, we should all be happy with sale prices moderating slightly. As I’ve said before in this column, the housing market we’re experiencing now feels more solid and lasting than 10 years ago. That’s my spin, and I’m sticking to it.