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(Celia Chen, senior director, Moody’s Analytics) Sales of U.S. existing homes marched upward in January, maintaining a trend that started in the second half of last year. Slow, but steady gains in existing-home sales, falling inventories, and softening in the median house price depreciation all point to a good start for 2012.
The fundamentals that drive the demand for housing are looking more positive. Job growth is gaining traction and consumer confidence is lifting. Moreover, housing remains highly affordable, with mortgage rates near record lows and house prices still declining in many regions of the country. Pent up demand for homes has also built up. These forces will all help home sales to continue improving this year. Distress sales will also help bolster existing home sales—although these sales will keep house prices from appreciating until late this year.
With each positive economic release and with policymakers still working to bolster the housing market, the downside risks for housing are diminishing. However, rising gas prices, troubles in the euro zone and the possibility that some recent economic and housing strength is weather-related mean those risks have not disappeared. Recall that 2011 began on a similarly positive note, but that conditions quickly deteriorated.
