There has been some positive news from the housing sector with sales and new home construction witnessing growth, albeit modestly. The housing data during the fall and winter, was slightly above than expected, an indication for the long-awaited recovery in the housing sector.
No one deny the fact that conditions are showing improvements, especially prices for non-distressed sales having stabilized in many markets. Credit availability and mortgage rules have also added to the positive environment to clear some of the excess inventory owned by financial institutions or tied up with the foreclosure process.
Yet, there are still challenges ahead for the housing sector. This is particularly on the back drop of millions of homes tied up in the foreclosure process that could tend to drive fears of a sudden new supply of homes flooding the market. Obviously, these fears are making appraisals conservative and mortgage underwriting standard unusually tight. This is in effect discouraging home buying and keeping many of the prospective sellers on the sidelines.
The recent improvement in home sales and new home construction have likely been overstated due to warmer and drier weather than the normal winter. Typically, November, December and January represent smallest percentage of new home sales every year. If the weather is milder than normal, even a little more home buying can translate into significant seasonally adjusted increases. This seems to be the case for the three-month period given the seasonally adjusted data for new home sales of 3.2 percent growth since October. This is further strengthened by the fact that unadjusted seasonal data indicate a fall of 0.1 percent in new home sales.
Wells Fargo said in a research note said ' Home sales would have slipped much more than that on a seasonally adjusted basis'. The unusual weather has allowed more new home construction thereby boosting starts and buyer traffic than the normal weather would have allowed. The National Association of Housing Bureau / Wells Fargo Housing Market Index witnessed 12 points growth during the last four months. The biggest gains are from the snow-starved West and the unseasonably mild Midwest.
Nonetheless, no one could ignore the positives from the current situation in the housing sector. The builders are clearly busier than they have been at any other time apart from the time they get involved during the tax-credit fueled buying binge. However, the gains are in patches. Most of new home construction is restricted to partially complete residential developments. By getting inexpensive lots to build homes, the builders were in a position to compete with nearby foreclosures. This has allowed builders to taste some success with infill locations and in the active adult sector.
The real test for housing recovery lies during the spring. Seasonal adjustment factors cancel out over the course of the year.