Home Prices Rising: Is the Real Estate Market Rebounding?

As the real estate market goes, so goes the economy.

OK, that may be a bit of an overstatement—but the truth is that the real estate market is a vital component of the overall economy, for better or for worse. Many of you may recall that the economic collapse of 2007 and 2008 was preceded by a massive plunge on the part of the real estate market. And many analysts blame the agonizingly slow recovery we are currently experiencing on the lackluster recovery of the housing market.

Now, however, things may be changing for the better. Bloomberg reports:

Home prices climbed more than forecast in October, indicating a rebounding real-estate market will bolster the U.S. economy for the first time in seven years.

The S&P/Case-Shiller index of property values in 20 cities increased 4.3 percent from October 2011, the biggest 12-month advance since May 2010, the group said today in New York. The median forecast of 30 economists in a Bloomberg survey projected a 4 percent gain.

Property values will probably keep heading higher as record-low mortgage rates, a growing population and an improving economy spur demand for housing. The turnaround in real estate is buoying household confidence and wealth, one reason why consumer spending is improving even as concern mounts that lawmakers will fail to stave off looming tax increases.

“The housing market is definitely starting to recover,” said Ryan Wang, an economist with HSBC Securities USA Inc. in New York, who’s the second-best forecaster of the S&P/Case- Shiller index over the past two years, according to data compiled by Bloomberg. Higher property values have “added about a trillion dollars to household wealth just since the beginning of this year.”

The boost to household net worth “will provide an important benefit for consumers and for the broader economy,” Wang said.

A sustained pickup in housing is a source of strength as the world’s largest economy struggles to overcome concern the so-called fiscal cliff, representing more than $600 billion in tax increases and federal government spending cuts slated to take effect next year should Congress fail to act, will slow the expansion.

Residential homebuilding has contributed 0.3 percentage point to gross domestic product on average in the first three quarters of 2012, according to Commerce Department data. The last time it added to growth for an entire year was in 2005, when it boosted the economy by 0.36 point.

Obviously, we have a long ways still to go before the economy returns to full strength. Unemployment remains high—and many analysts are concerned about the threat posed by our skyrocketing government deficits.

But while challenges certainly remain, a recovering real estate market is a huge step in the right direction. If you’d like to learn more about the opportunities created by these developments, or if you’d like help structuring your investment portfolio to succeed no matter what the economic conditions may be, please get in touch with us today!

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