Real Estate Booms – So Why Does Confidence Lag?

real estate booms -- but confidence lags

It’s hard to look at 2015 and think that real estate has had anything but a banner year. As of October, according to the National Association of Realtors, home sales are up 3.9 percent when compared with the year ago while existing home prices have risen 5.8 percent.

RealtyTrac, the nation’s leading source for comprehensive housing says that October data, the latest available, shows that among 94 major metro areas analyzed for the report, 33 markets (35 percent) have now reached new all-time home price peaks in 2015.

The RealtyTrac report also shows that “the median sales price of U.S. single family homes and condos in October was $207,500, up 1 percent from the previous month and up 10 percent from a year ago — the highest year-over-year percentage increase since February 2014.”

According to the company, “the 10 percent increase in October 2015 came following 20 consecutive months of single-digit annual increases in median home sales prices and marked the 44th consecutive month with a year-over-year increase in median home prices. Despite nearly four years of increases, the U.S. median sales price in October was still 9 percent below the previous peak of $228,000 in July 2005.”

“Home price appreciation did not go into hibernation in October even as the housing market entered the typically slower fall season,” said Daren Blomquist, vice president at RealtyTrac. “More than one-third of the nation’s major housing markets have now reached new home price peaks this year, and nearly 90 percent of markets posted an annual increase in home prices in October. Home sellers are sitting pretty in this market, realizing an average profit-since-purchase of 16 percent — the highest in any month since December 2007, on the cusp of the Great Recession.”

Metro areas that have reached new home price peaks in 2015 according to RealtyTrac include Detroit, which hit a new peak in October with a median sales price of $155,000. Other metros that reached a new price peak in 2015 include Dallas, Houston, Atlanta, St. Louis, Denver, Pittsburgh, Charlotte, Portland, San Antonio and Columbus, Ohio.

What makes these gains impressive is that they’re taking place at a time when inflation has almost completely stalled. Inflation levels this year have shown monthly increases which have ranged from 0 to .2 percent. This means that the price increases seen by homeowners nationwide represent real gains in buying power, the true measure of wealth.

Real Estate and Public Confidence

And yet, despite terrifically positive news for real estate, one of the best measures we have regarding economic progress or decline, the public is not buying into the notion that times are good.

According to the Conference Board’s Consumer Confidence Index, the measure stood at 99.1 in October and just 90.4 in November.

“Consumer confidence retreated in November, following a moderate decrease in October,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “The decline was mainly due to a less favorable view of the job market. Consumers’ appraisal of current business conditions, on the other hand, was mixed. Fewer consumers said conditions had improved, while the proportion saying conditions had deteriorated also declined. Heading into 2016, consumers are cautious about the labor market and expect little change in business conditions.”

It’s hard to understand why the public should have a “less favorable” view of the job market. According to the Bureau of Labor Statistics unemployment in October was 5.0%, down from 7.2% two years ago. That’s a big difference and surely the trend is headed in the right direction, but somehow better numbers are not translating into renewed and enthusiastic consumer confidence.

Will 2016 be any different? Here’s hoping that’s the case because without rock-solid consumer confidence it’s going to be that much tougher for demand to grow and prices to rise.

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