Once ground-zero for the worst financial crisis in U.S. modern history, the housing sector has been a source of steady strength for the U.S. economy during the past few years.
Based on data from S&P/Case-Shiller, U.S. home prices are still down 5 percent from their 2006 peaks, but they’re up about 31 percent from their lows in 2012.
In the six months through July, home price growth has stabilized at around 5 percent year-over-year. That’s a solid pace, but well below the 15 percent-plus growth seen when the housing bubble was inflating in the years leading up to 2006.
S&P/Case-Shiller National Home Price Index
That’s not a bad thing. A more measured pace of growth is obviously preferable to a mania when it comes to the long-term health of the sector.
Home Construction Muted
Underpinning the strength in home prices has been the consistent rise in demand. Yesterday, the National Association of Realtors (NAR) reported that existing home sales in September rose by 8.8 percent from a year ago to an annualized 5.55 million unit rate. At the same time, supply has struggled to keep pace, with housing starts at historically low levels.
Lawrence Yun, NAR’s chief economist, points to several reasons for the tepid pace of homebuilding, particularly when it comes to single-family homes.
"There are many things holding back construction activity for owner-occupied housing," he said. Those include "difficulty of obtaining construction loans, difficulty of finding skilled construction workers, and local government officials approving only apartment buildings, but not condominium buildings."
Yun says that building activity levels for single-family homes are still at recessionary levels.