The breakdown of the housing sector has steered the nation into economic affliction. Another impending frailty in housing creates more risk to a slow-paced economic recovery.
The National Association of Realtors reported on Thursday that sales of previously owned homes rose to 7.6 percent. This is contrary to forecast for a stronger recovery after its fall to 27 percent in July.Another report stated that builders started work on more new homes than expected in August. This represents a 10.5 present increase but data issued on Wednesday indicated home prices fell to 0.5 percent in July.
Housing contributed greatly to the economic growth from late 2009 through the early months of 2010. But due to its fall, housing sector is dragging down the already weak economy.
On the positive sense, housing has already reached the bottom that even another downfall in the sector area would not be sufficient to through the nation back into recession. Being an industry that influences the economy significantly, home prices become an indicator on how wealthy homeowners are, thus, affecting consumer spending. Another effect is that it becomes a determining factor how much money banks lose due to foreclosure, thus affecting the financial sector. Sales of houses also affect other industries as home furnishings and other items.
According to Mike Larson, real estate analyst at Weiss Research, he doesn’t think housing is the major helm for the economy’s going to-and-fro. “A stuck in the mud as we work in excess inventory, housing will only affect a little than it had few years ago,” he added.
Previously, when recession struck, builders pull back home construction during a recession, and when it ends, demand for houses go up and construction activity perks up. However, what’s happening is not a typical recession. There was overproduction of housing until 2006 preceding the downturn, and this excess is still being worked off, partly through foreclosures.
In August, builders started work on housing units at a 598,000 annual rate, an increase from last year, but still below the 1.3 million needed annually in proportion with the population growth. But due to the low job market rate, household formation appears below the trend rate as more people share homes with their family members in order to save more expenses.
There was an 11.6-month supply of homes on the market, according to the National Association of Realtors, Thursday, despite more vacant homes and continuous foreclosure activity.
Home sales activity broke down after the homebuyer tax credit expired in the spring. This includes the 27 percent decrease in July sales of existing homes. Recent gains are a mere result of the change in tax policy than an indicator of strength in housing.
Patric Newport of HIS Global Insight said, “The only positive thing about housing is that the data are going better, but the numbers are disappointing right now that getting better isn’t saying much.”
