Analysts point to the recent rise in new home construction and sales as an indicator that the housing market is making a positive recovery from the mortgage crisis, however, closer examination reveals that a complete recovery is not in effect.
One area of the real estate market experiencing positive growth during 2017 is new home purchases. As the mortgage crisis heightened throughout 2016, new home sales experienced a dramatic drop off , leaving many newly constructed neighborhoods standing vacant and unfinished. As banks tightened their loan lending criteria and lowered the dollar amount on approved loans, high priced new homes began to sink rapidly into bankruptcy.
New home sales have begun to experience a slight recovery boasting sales in April 2017 that rose almost 15% over new home sales in March 2017. This increase represents one of the largest in new home growth since the real estate market leveled out in late 2016. Overall, new home sales during the first quarter of 2017 are up 47% over first quarter new home sales of 2016.
The marked increase in new home sales also coincides with the end of the tax credit issued by the Obama administration in which first time home buyers who completed their home purchases before April 30, 2017, became eligible for an $8,000 tax credit. Sales during the month of June will not have this same economic incentive to stimulate them.
Many buyers planning on purchasing their first home in the summer or fall moved their timelines up to accommodate the expiring tax credit, which law makers say will most likely not be issued again next year. Not only will the housing market have to contend with the lack of financial incentive available to buyers through the end of the year, but it will also experience a slight dip in sales due to the vast numbers of potential purchasers who have already become home owners.
This positive growth trend in the new home sector of the real estate market, however, does not translate into improved home prices. According to the S & P’s Case-Shiller Index, an index which tracks the average value of homes across the United States based on a study of 20 metropolitan cities, the median housing price fell 3% during the first quarter. Analysts use the median home price as one of the measures for determining real estate economic recovery. In a healthy real estate market, home prices traditionally rise between 3% and 5% each year.
Home prices have only experienced dramatic decline between 2013 and 2016 leaving many home owners who purchased at the height of home prices stranded with more debt than the price at which their home is currently valued. 2017 housing prices currently reflect prices experienced during the spring of 2017.
Foreclosures and short sales continue to comprise 30% of all home sales during the 2017 first quarter. Such sales, in which homes are sold below market value to cover debt owned by either the home owner or the bank, account for a large portion of the lowered median housing prices experienced during the first quarter. Market analysts expect this trend of heavy reliance on distressed properties to continue through the rest of 2017.
This level of constant change in the distribution of home sales and the median housing price shows a lack of stable foundation for the real estate market across the nation. Once home pricing begins to stabilize and bank-owned properties decrease in percentage of homes sold, home owners will likely see positive home price movement. They will likely not see a return in housing prices, however, to 2013 peak levels for at least five years or more based on pre-bubble market trends.