Housing Rents on the Upswing

A bubble that caused a global recession has been a long time deflating. The American housing market began to decline half a decade ago and hasn’t stopped yet. Prices dropped by 5.1% from the year before, according to the latest S&P/Case-Shiller national index.

By our calculations, however, America’s housing market has overshot the fair-value mark, as measured by the long-run average ratio of house prices to rents. Rents are rising: an increase in the cost of rental housing contributed to May’s robust American inflation data. With home ownership looking a better deal, prices should stabilise. The Case-Shiller index posted a month-on-month increase in April for the first time since July 2010. It was not alone in showing gains. The Federal Housing Finance Agency (FHFA) price series ticked up in April for the first time since May 2010, and the CoreLogic index of home prices, a favourite of the Federal Reserve, notched price rises in both April and May. The pace of sales has been sluggish but an index of pending home sales posted a surprisingly large gain in May.

The best news of all may be the ongoing improvement in credit conditions. Delinquencies have trended downward since late 2009. Consumer-debt payments relative to incomes are at a 17-year low and household credit scores are rising. Banks are still being stingy with credit but households are better positioned than they were to take advantage of cheaper homes states The Economist.

Published by Stout Law Firm

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