There are many signs that the housing market is in full recovery mode: home prices are up 12% from a year ago; Re/Max, one the nation’s largest real estate brokerages, just filed for an IPO; and Zillow, which operates the largest U.S. real estate Internet site, announced it was buying StreetEasy, another real estate site. But Jonathan Miler, CEO of real estate appraisal firm Miller Samuel, says the housing market has not recovered yet.
The rebound in housing "is based on nothing,” says Miller.“Incomes are flat, credit is tight and unemployment and underemployment are unacceptably high," Miller says in the attached clip. "Yet housing prices nationally are rising in excess of 12%."
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One of the big drivers of the jump in prices is the growing number of purchases by investors rather than homeowners--many of those purchases in cash. Thirty percent of existing home sales are paid for in cash according to the National Association of Realtors. Goldman Sachs estimates more than 50% of new and existing home purchases are paid in cash. Investors have been big buyers of foreclosed homes, but Miller expects those sales will slow.
Looking ahead, Miller says the current “breakneck pace” of home sales overall will decline as interest rates rise, which is expected as the Fed reduces its aggressive easing policies. But contrary to conventional wisdom, Miller says rising rates are not necessarily bad for this housing market.
“Higher rates will reduce froth in the market which makes the rise in housing prices more sustainable,” says Miller, adding that it will knock about 7% to 8% of potential buyers off the market.
So what’s really needed for a sustainable recovery in housing?
“A much more historically normal unemployment rate—something in the 6% range," he says.
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