Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
There’s bad news and good news in the list below. Which is the good news?
A) The race for president is heating up.
B) Congress’ own accountants are warning lawmakers a recession looms in 2013 if they don’t head off an automated schedule of massive tax increases and spending cuts.
C) Europe is still an economic basket case.
D) The U.S. housing market appears to have hit bottom.
The answer is D. It is indeed good news if housing has finally crash-landed (or stopped going down). An industry can’t start recovering until that happens. And we need home construction, incredibly important to the U.S. economy, to bounce back.
In mid-2003, for example, residential investment contributed nearly one full percentage point to our gross domestic product. But in 2005, that investment — heavily dependent on new home sales — peaked and began a six-year slide that has repeatedly stolen nearly a percentage point from annual GDP.
That ended in the fourth quarter of 2011 when housing became a slightly positive GDP factor. It is currently adding 0.3 percent to GDP growth — not bad considering total GDP growth is running at only about 2 percent.
Some signs housing is about to dust itself off and rise up from the mat:
• Flat prices: On a national basis, prices stayed nearly even from May 2011 to May 2012, and even rose 2 percent from April to May. That’s a huge improvement compared with the 34 percent drop from mid-2006 until the start of this year.
• Inventory is down: Most real estate experts will tell you a balanced housing market will have about six months of supply available. Inventory levels exceeded nine months in late 2010, but now are much closer to the ideal six months.
• The dream lives: While the number of renters has grown dramatically the past six years, a recent study shows 86 percent of current renters say they still plan on buying.
• Demographic history: Since 1965, an average 0.8 percent of U.S. households have purchased new homes annually. That number has fallen in recent years to 0.35 percent. If we do return to the long-term buying trend, demographic studies tell us we will need 1 million new homes annually by 2015 just to keep up with national demand. There are only 150,000 new units available now, so there is clearly room for improvement for new home sales.
How does this all impact Atlanta? Remember, we are about a year behind home price trends nationwide. (See my March 12 blog post for details.) Prices started climbing nationally at the beginning of 2012, so we could see local prices start to rise by the new year. We’re already seeing increases in certain parts of the Atlanta area. Metrowide, second quarter median sales prices were up almost 6 percent, year-to-year.
Further, metro Atlanta’s inventory has fallen by 42 percent — only a four-month supply.
Do you think the local housing market is turning the corner?
What are you seeing in your neighborhood? How will all this affect your financial planning?
– Wes Moss, for Atlanta Bargain Hunter