Wednesday, May 29, 2013
Both the Boston Globe and the New York Times today have prominently placed stories on improving conditions in the national housing market. The Globe reports that home prices in April rose 14% which is the seventh consecutive monthly increase. One concern is that the number of homes for sale dropped which might lead to a slowdown of the market. I've been writing for a while that perceived improvements in the home sales market are being driven by supply and demand. With interest rates so low, many people are ready to purchase homes but with so many homes still underwater on their outstanding mortgages, not many current owners are able to sell. High demand plus low inventory equals rising prices. The New York Times story addresses this in part, writing that increasing prices are adding to overall consumer confidence. When people feel that trends are positive, it creates what is known as the "wealth effect" meaning people feel wealthier and are more willing to spend money. This in turn improves the economy even more creating an upwards cycle. Anecdotally, one local conveyancer who just left the recording counter mentioned having five closings scheduled already for this Friday which resembled a throw-back to the pre-crisis state of the local real estate market. Hopefully this trend persists.