Two articles published today in the Washington Post (online edition) tell the tale of increased housing starts and decreased foreclosures. These articles, “Housing Starts in U.S. Increased More Than Forecast in May” and “Foreclosures Plunge as Process Delays Mask Rising Bank Inventory,” point out the positive marks the housing market has hit. However, these gains are presented gingerly as underlying factors are acknowledged.
Housing starts, usually a strong economic indicator, were up in May. Not only were they up, but they were up more than what was originally forecast and up significantly from the same time a year ago. Citing Commerce Department data, the Post states, “Work began on 560,000 houses at an annual pace, up from 3.5 percent from the prior month and exceeding the 545,000 median forecast. . .“ Along with housing starts, the number of building permits issued also increased. This could be a promising sign for future home construction.
Foreclosures, on the other hand, saw a significant decrease in May. In fact, “a total of 214,927 properties received default, auction or repossession notices in May, the fewest since November 2007. . .“ This marks the eighth straight month that foreclosure filings have decreased. In addition to foreclosures, default notices and scheduled auctions were also down from the previous month and the same time a year ago.
With all this positive news, however, comes a reality check about the condition in which the housing market still remains. Yes, housing starts are up, but so is the unemployment rate. Foreclosures are down, but the volume of Real Estate Owned Properties (REOs) still remains high, and the amount sold per month is still less than the new supply that is added over the same time. These gains are also not being seen across the board geographically. Much of the overall increase was driven by large gains made out West, while other regions remain largely unchanged.
The numbers are encouraging, and there is much about which industry professionals and consumers can remain optimistic. Lenders are retuning the foreclosure process and offering incentives to unload REOs (see Fannie Mae’s HomePath® program), and, in some areas, buyers are starting to buy and builders are starting to build. It will be interesting to see how the market responds over the next few months on the heels of this data, much of the Dodd-Frank legislation taking effect, and a possible shift in consumer confidence.