It’s sadly still not probable that the housing sector will become a strong economic growth influence in the U.S. as a new report on Tuesday showed that growths in home prices are lower than expected.
According to the S&P/Case-Shiller Home Price Index Survey, conducted in 20 cities, house prices showed a mere 9.3 increase in May compared to last year. This might seem like a decent number to many, it is however lower than the yearly pace in April (10.8 percent) and the 9.9 percent that many economists had foreseen for May.
Economists also added that the increase pace is the slowest we’ve seen since February 2013. The report also showed that 18 of the 20 cities had slower year-over-year growth rates in May as opposed to April. So much so that cities such as San Diego and San Francisco experienced year-over-year figure decelerations of around three percentage points.
Don’t be alarmed, however, if the figures don’t correspond to those expected by economists. The bigger picture looks rather sunny, since in spite of the weaker than expected numbers, the overall trend shows a slowly recovering market. This in turn indicates that the overall economy is slowly but surely recovering.
Analysts from HIS Global Insight explained that while last year prices were growing at double-digit rates, smaller increases over higher bases are still a healthy sign and prove the positive trend that the market is following. They added that home price appreciation reflects on city economic health and that the current report suggests that fundamentals are fueling this home price growth instead of a speculative bubble.
Actually, this slower growth reflects a decrease in sales. The National Association of Realtors reported that they are experiencing a 1.1 percent decrease in pending home sales in June as opposed to May and an overall 7.3 percent decrease as opposed to last year’s levels. What is worrisome, however, is the fact that price gains are slowing in spite of the decrease in foreclosed homes that are on the market. Foreclosed homes have been a drag on average housing prices as they sell at lower prices.
A report from the Commerce Department suggested that the likelihood that sales volumes experience a dramatic rebound is fairly low. This weakness in sales numbers is explained by the fact that supply shortages continue to exist in some parts of the country, while wages remain low and credit conditions keep tightening. As a result, potential buyers are deterred from taking advantage of lower interest rates, said Lawrence Yun, NAR chief economist.
