The housing sector is an important part of the US – or virtually any – economy; both in terms of new construction and from the sale of existing stock. Whilst new builds clearly generate employment across a range of trades and professions from architects to labourers, sales of existing stock will involve spin-offs to a range of people from real estate agents to solicitors, removals companies and decorators etc. Therefore, indicators related to the housing market are closely watched, both in their own right and as a barometer for the wider economy – people don’t buy a new home or move unless they are confident about their security in the job market and can get financing for their project.
Data on the US house price for April, based on an index of the price of single-family homes drawn from 20 cities has shown that prices have risen by 12.1% over the preceding 12 months. The rise is the largest increase seen in the US housing sector since 2006. The Case Shiller index shows that the increase in the cost of such homes has also risen by 2.1% between March and April.
The increase in house prices is, of course, not uniform, but with the exception of Detroit, all cities surveyed showed double digit price increases in the year-on-year data. Prices for homes in San Francisco jumped by 20% over the past year.
The increase in prices is being fuelled by a shortage on the supply side which ought to mean that a boost in house construction is in the pipeline – if demand is sustained. Builders will remain cautious about new projects until they are confident that buyers can be found for the finished product. There is uncertainty about the effect the winding down of Federal Reserve stimulus measures will have on the supply of funds for mortgages. The Fed has suggested that the programme will terminate in 2014.