Real Estate & Mortgage Insights

The Housing Market is Showing Signs of Life � Has Economic Recovery Begun?

Good news is pouring in from the U.S. housing market � both new and existing home sales are on the rise. Could this signal the beginning of the end of the economy's woes?

New Home Sales

According to the Commerce Department, new home sales grew by 11.0 percent in June from May figures to a seasonally adjusted annual pace of 384,000. While the current pace is down 21.3 percent from last year, it is up dramatically from economists' predictions that sales would rise just 2.3 percent for the month. Plus, this uptick represents the fourth increase in new home sales during the past six months, a good sign that the bottom of the housing market is behind us.

Existing Home Sales

Sales of existing U.S. homes rose for the third straight month in June and National Association of Realtors chief economist Lawrence Yun believes this is part of a pattern. "The increase in existing home sales occurred in all major regions of the country," he said. "We expect a gradual uptrend in sales to continue due to tax credit incentives and historically high affordability conditions."

Hold the Phone - Foreclosures and Unemployment

While some positive data is showing up in the housing market, there are still a couple of other things keeping the overall U.S. economic picture from looking as rosy. For example, the national unemployment rate hit 9.5 percent in June and many economists are predicting that the rate will climb to 10 percent by the first part of 2010. Rising unemployment means many people will be trying to save more and spend less, a trend that seems very healthy on an individual level, yet worries analysts to no end. Without spending, our economy doesn't grow.

Mounting unemployment also means more foreclosures are on the way. According to a report by foreclosure data tracking company RealtyTrac, total homes in the foreclosure process rose 9 percent in the first half of this year from the previous six months, to 1.53 million properties. That number is up 15 percent from the same time in 2008 and means 1 out of every 84 American homeowners was in some stage of the foreclosure process.

And June figures show the trend is continuing to worsen. Foreclosure filings were up almost 5 percent from May and 33 percent from one year earlier.

"What this means is, despite the intensity of the efforts on the part of government and lenders, we don't have a handle on foreclosures yet," said Rick Sharga, a spokesman for RealtyTrac.

And James J. Saccacio, chief executive officer of RealtyTrac added, "Foreclosure activity continues to increase to record levels. Unemployment-related foreclosures account for much of this increased activity, and the high number of borrowers who find themselves owing more on their mortgages than their homes' are now worth represent a potentially significant future risk."

Even so, there is reason to be cautiously optimistic. A recovering housing market, even in its beginning stages, is one of the important pieces that must fall into place for the overall economy to follow suit.