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Taking a National View of the Real Estate Market

Posted: 4 Oct 2012

The Aspen real estate market is set against the back drop of the national real estate market. There is little doubt now that the national real estate recession is over and the enthusiasm for real estate has returned. The Presidential election may be keeping some buyers on the sidelines; but favorable prices and low interest rates are bringing buyers across the country back into the real estate market. The improving real estate market may even contribute to determining the outcome of the Presidential election as people start to feel better about the outlook for the national economy.

Aspen real estate

Two weeks ago, the Standard & Poor's/Case-Shiller 20-city index, the most widely watched real estate index, showed that national home prices had risen 5.9% from a year earlier. Some markets, such as San Francisco and Phoenix, have seen big increases in values of 10.1% and 15.0% respectively. This was the largest gain in annual real estate values since 2005. In comparison, this gain was significantly greater than the same period in 2011 and 2010 when the index rose only 0.4% and 2.0% respectively. One of the principle reasons for the resurgence in home prices is the dwindling inventory along with fewer distressed homes from foreclosures on the market. Existing home inventory is at an eight year low and new-home inventory is the lowest at any time since the U.S. census began tracking that statistic in 1963. Another key driver of the national real estateA recovery is the historically low interest rates. Although new financing is difficult to qualify for, low rates of 3.5 % for a fixed thirty year mortgage make the current time ideal for purchasing real estate. The same holds true for commercial loans that currently cost under 5.0% for ten year term mortgages with twenty five year amortization schedules. In addition, the Federal ReserveaEU(tm)s recently announced program to purchase mortgage-backed securities should keep rates low for the foreseeable future. Also, this past August, new home construction reached its highest level in two years.

The improving new home market, however, is still significantly behind the boom years of the last decade. On Wall Street, home construction companies, such as PulteGroup, Inc., DH Horton, Inc. and Lennar Corporation have all seen significant increases in stock prices of 45%, 12% and 13% respectively in the third quarter as investors anticipate significantly higher profits in the near future.

Despite the flow of this good news, there are still reasons to be cautious. The overall economy recovery is still slow with job growth remaining sluggish. There is also the concern over the fiscal cliff issue facing the country. The fiscal cliff is the planned expiration of the Bush-era tax cuts along with the automatic spending cuts that will take effect at the beginning of 2013 as a result of the government's failure to reach a bi-partisan agreement on a plan to reduce the federal deficit. The Congressional Budget office has warned that the country would likely go into another recession if the U.S. goes off the fiscal cliff.

Despite these potential clouds on the horizon, the improving market psychology is very important to the health and vitality of the real estate market. If people feel good about the real estate market, they will start buying real estate again. With the recent flow of positive news about real estate, the national real estate market should continue to gain strength. As the national appetite for real estate grows, we should continue to see improving demand for real estate here in the Aspen area.