Game Change

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The Latest ANALYTICS Or ig i nat ion Price Decline Benefits Home Sales A drop in new home prices drives sales up to a nearly five-year high. By Mark Lieberman, Chief Economist, The Five Star Institute a na ly t ic s Housing Recovery at 61% Trulia likens it to an awkward teenager— growing in spurts and having to support itself. T he housing market made it to 61 percent "back to normal" in May, according to the latest Housing Barometer from Trulia. May's percentage is the first time the recovery has passed 60 percent since the crash. April's barometer was 54 percent. It was 35 percent a year ago. The monthly report measures three key housing market indicators—construction starts, existing-home sales, and the delinquency-plus-foreclosure rate—to track how quickly the market is recovering to its normal, prebubble state. All three metrics improved in May, with starts and sales rising and the delinquency/ foreclosure rate falling. According to the May report from the Census Bureau, starts were at a seasonally adjusted annual rate of 914,000, up 7 percent from April but still below February and March. On the sales side, the National Association of Realtors reported a 4 percent increase in May to a seasonally adjusted annual rate of 5.18 million. Overall, starts are about 43 percent back to their normal level of 1.5 million, while sales are 82 percent back to normal. Meanwhile, the share of mortgages in delinquency or foreclosure dropped to 9.13 percent in May. The combined rate is 57 percent back to normal. "The recovery has reached full-fledged teenager status, with awkward, sudden growth spurts and parents—the Fed—who now threaten to take away its allowance by winding down measures that pushed mortgage rates down to historic lows," said Jed Kolko, chief economist at Trulia. "Before long, the recovery should make it into adulthood, but it will face some grown-up challenges in the next couple of years: still-tight mortgage credit for many borrowers, a slow jobs recovery for young adults, and unaffordable housing in large coastal markets." The M Report | 73 se c on da r y m a r k e t last year. May sales were up 29 percent over 2012. The increase came in the same month in which the Housing Market Index, the monthly confidence survey conducted by the National Association of Home Builders, rose three points to 44, largely on the strength of an improved assessment of then-current sales prospects. The HMI jumped eight points in June to 52, the first positive—more than 50— reading since April 2006. In June, builders' assessment of "buyer traffic" improved to its highest index level since March 2006. The new home sales report tracks contracts for sale, not closings, and as such is comparable to the Pending Home Sales Index (PHSI) compiled by the National Association of Realtors (NAR). The NAR will release its May PHSI Thursday. The Census/HUD report for May also included data revisions back to February, which showed higher levels of sales in February and March in addition to April. In May, builders completed 546,000 single-family homes (seasonally adjusted annual rate), up from 524,000 in April. The gap between the pace of sales and completions was 70,000 in May, up from 58,000 in April but down from the average of 124,000 in the previous 12 months, suggesting builders are likely to increase construction efforts to meet what may be an increase in demand. Regionally, sales improved month-over-month in May in three of the four Census regions, falling only in the South, where the sales rate dropped to 243,000 from 267,000 in April. In the Midwest, the sales rate was up 24,000 to 83,000; in the Northeast, up 6,000 to 35,000; and in the West, up 4,000 to 115,000. s e r v ic i ng T he price of a new singlefamily home dropped 3.2 percent in May, but sales increased 2.1 percent to 476,000, the highest level in almost five years, the Census Bureau and HUD reported. Economists surveyed by Bloomberg expected April sales to increase to 460,000 from April's originally reported 454,000. April sales were revised to 466,000. The median price of a new home, according to the Census/ HUD report, dropped $8,700 to $263,900. April's median price was revised up to $272,600—the highest price on record from the originally reported $271,600. The inventory of new homes for sale rose to 161,000 in May—the highest level since September 2011 from 157,000 in April. The months' supply rose to 4.1 from 4 in April. The Census/HUD homes sales report showed a decided shift to lower-priced homes: 13 percent of homes sold in May were priced at $150,000 or less compared with 7 percent in April, and 18 percent were priced at $400,000 or more in May, down from 22 percent in April. The average price of a new home tumbled $23,500 in May after skyrocketing $36,500 in April. The average price in May was 9.6 percent above May 2012. The median price in May, despite the month-over-month decline, was up 10.3 percent over May 2012. The median price has been up a staggering $44,100 in April, or 15.4 percent, to $330,800, the ninth time in the last 10 months the median price has shown a double-digit percentage annual gain. New home sales have increased for three straight months for the first time since July–September

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