Here’s How the U.S. Housing Recovery is Gaining Momentum

In the month of August, the sales of previously occupied homes and the construction of new homes increased, evidence indicating that the U.S. housing market is in recovery.

Last month saw sales of previously occupied homes rise 7.8 percent from July. The National Association of Realtors announced Wednesday that home sales reached an adjusted annual rate of 4.82 million, the highest level since 2010, when the federal home-buying tax credit aided sales.

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Builders reported beginning construction on 2.3 percent more homes and apartments in August as well. According to the Commerce Department, the annual rate of construction rose to a seasonally adjusted 750,000 new homes. For single-family homes, statistics rose 5.5 percent to 535,000 homes, the greatest increase in single-family construction in over two years.

The two reports support data released yesterday by the National Association of Home Builders, which reported that its survey of builder confidence in the market for newly-built, single-family homes increased for the fifth straight month in September.

Because housing demand has increased, stocks have surged for home builders like PulteGroup (NYSE:PHM), Lennar (NYSE:LEN) and the largest U.S. luxury builder Toll Brothers (NYSE:TOL). Overall, the SPDR S&P Homebuilders ETF, a benchmark for the housing sector, has gained 45.44 percent since this time last year; and Michigan-based PulteGroup has gained 146.43 percent year-to-date, Texas-based D.R. Horton (NYSE:DHI) has gained 63.12 percent, Toll Brothers has gained 71.11 percent, and Los Angeles-based KB Home (NYSE:KBH) has gained 90.03 percent.

“The U.S. housing recovery is for real,” said BMO Capital Markets economist Sal Guatieri in a note to clients. “Great affordability, pent-up demand and strong investor interest in rental units are driving the market.” In his opinion, the Federal Reserve’s plan to spend $40 billion a month on mortgage-backed securities, to keep mortgage rates low, can only help.

According to the National Association of Realtors, homes are selling more quickly than a year ago. The average amount of time a home spent on the market was 70 days in August, down from 92 days last year. The median home price dropped, to $187,400, but the month’s median house prices are 9.5 percent higher than in August of 2011.

However signs still point to a recovery in process, not a completed recovery. Even with gains, the housing market remains weak. While more Americans appear to be taking advantage of near-record low mortgage rates than six years ago, the number of first-time homebuyers is still low. In a typical market, 40 percent of homebuyers are making a new-home purchase for the first time. This month, that number slipped to 31 percent from 34 percent, mostly due to stricter credit standards. Many would-be buyers have difficulties qualifying for loans and affording the larger down payments required by banks.

“Housing is clearly in recovery mode,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.

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