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Analysis of Current Trend in Housing

The housing market in the US remains depressed following the economic crunch which started in 2008. Although the US economy is lifting itself up from the down turn, real estate vendors continue to record low residential houses sales volume with respect to historical figures. But there has been reported some promising trends in industry. Analysis; Some signs of recovery in the real estate industry and more so in residential housing properties have been observed in the US, though at a small scale.

For instance, the recorded homes sale month-over-month for June was 5.1%, beating the predicted rate of 9. 9% as report by MKM Partners indicates (www. online. barons. com). In addition, the home sales figure for new-homes for June rose to a peak of 23. 6% from the record slump reported in May. The report continues to note that new-homes’ inventory-to-sales ratio fell back to 7. 6 months after shooting to 9. 6 months in sales for may, which is an important elevation. The ideal inventory-to-sales ratio is that 6. 0 months and under. Due to income recovery as well as lending rates continuing to stay down, affordability backdrop has made significant gains.

Further, Cook (2010; June 14) writing for Real Estate Economy Watch notes that, first time new buyers have been overtaken by investors and repeat buyers for the first time in three years, which has resulted in multiple bidding offers (sometimes in cash) being made on short- term sales properties as well as Real Estate Owned (REOs), hence pushing the prices up. This is good news for realtors who had been rendered unable to sell, as well as the home mortgage lenders who, because of price depreciation, were unenthusiastic about lending due to high default risk and sharp price depreciation.

This trend of investors showing interest in housing is favorable to the fortunes of the housing market because they send a positive signal to the market, that investors have confidence in the housing industry staging a significant comeback. Yet another hope for the recovery of the housing industry is the optimism that a sustainable economic bounce-back that will see income expansion as well as labor market recuperation, especially in the private sector, is underway. This would mean a rise in demand for housing and as result an upward drive of the prices of residential houses especially in metropolitan areas as research by Fiserv (www.

fiserve. com) revealed. Reasons to be wary; Despite the promising performance from the immediate lows, the average home prices in the US remain very low as compared to the estimated fair values. This is attributable to rising interest rates, the relatively high unemployment level that is showing little signs of abating, as well as the huge number of real estate properties that are distressed and which still remain in markets, as has been indicated by the high inventory-to-sales ratio for existing homes, especially for single-family homes.

For this reason, the housing market still faces the risk of experiencing a renewed downward pressure on prices on a small scale, mainly due to the expiry of the tax credit for first-time buyers, who have shown tendency of disappearing (number of people signing up to buy new houses has shrank) and thus keeping up the number of foreclosures predicted at high levels. The prices should however stabilize by the end of the year 2010. As the MKM Partners’ report observes, the case-Shiller numbers for May, as has been the tradition, showed a comparatively stronger performance for housing.

The trend is likely to remain through august, but there are so many factors in play which are likely to eat away the gains that are usually made by the industry during this period. The factors include the continued relatively high unemployment level, the slowly rising interest rates, as well as the expiry of the tax credit offer for first-time home buyers. Relevance of the Trend to Financial Management; The housing industry is one of the most fertile investment grounds for both individual and institutional investors.

Thus, the trends in terms of the performance of the sector is of concern to every finance manager who has sank his funds into the industry, as well as that who intendeds to commit investment in the industry. In addition, the housing industry is deeply embedded into the financial industry by way of connection through real estate mortgaging by financial institutions. Conclusion and Recommendations; Although the housing sector is showing some signs of recovery, the industry is still is still caught up in the downside of the business cycle as is evidenced by the low prices in residential housing units.

The recovery of the industry as is that of the entire economy is expected to be in the long term. Thus, financial managers with investment interests in the industry need to exercise prudence in observing and analyzing the current trends posted by the industry before taking investment decisions whose ramifications are to be felt in the long run. REFERENCES: Fiserv. (2 September 2008). Case-Shiller(R) Home Price Insights: Despite housing crisis, Nashville shines among affordable markets with solid employment.

Retrieved on July 29, 2010, from http://investors. fiserv. com/releasedetail. cfm? ReleaseID=331590 Cook, S. (14 June 2010). Growing Confidence Fuels Single Family Home Price Increases. Real Estate Economy Watch. Retrieved on July 29, 2010, from http://www. realestateeconomywatch. com/category/housing-forecasts/recovery-signals/ MKM Partners. (28 July 2010). Four reasons to be upbeat on housing. Barons. Retrieved July 29, 2010, from http://online. barrons. com/article/SB50001424052970204876804575393681967854838. html.

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