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Last updated: April 30, 2013 6:30 pm
The US home ownership rate fell to the lowest in nearly 18 years pointing to the jump in demand for rental housing and investor purchases. A separate data release showed residential property prices posted the largest year-on-year gain in February since 2006.
The share of the country’s population that owned their homes fell to 65 per cent in the first quarter, down from 65.4 per cent in the same period in 2012 and the lowest since the third quarter of 1995, commerce department data showed on Tuesday. Home ownership is still far below the 2005 peak of 69.1 per cent.
Although more Americans are buying homes, tight credit conditions and tougher mortgage requirements are still holding back many homebuyers who are opting to rent.
The vacancy rate for rented homes dropped to 8.6 per cent in the first three months of this year from 8.8 per cent a year ago, while vacancies for owner-occupied houses fell to 2.1 per cent from 2.2 per cent.
Meanwhile, cash-rich Americans and larger institutional investors have sopped up the pool of cheap properties on the market hoping to cash in on the increase in demand for rental housing. Investor demand combined with record-low mortgage interest rates and an improving jobs market have depleted inventories and fuelled home prices.
The Standard & Poor’s/Case-Shiller home price index, which tracks monthly changes in the value of residential property in 20 metropolitan regions across the US, showed that prices adjusted for seasonal variations rose 1.2 per cent in February, after climbing 1 per cent in January. Economists had expected a 1 per cent increase.
The year-on-year gauge, which is a better indicator of trends, showed prices rose 9.3 per cent in February from the same month in 2012 following a 8.1 per cent rise in January. Economists surveyed by Bloomberg had expected a 9 per cent rise.
Economists hope that as home prices rise, more Americans will be encouraged to put their properties on the market, boosting supply and momentum in the housing recovery.
David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said the 20-city index recorded its highest annual growth rate since May 2006.
“Despite some recent mixed economic reports for March, housing continues to be one of the brighter spots in the economy. The 2013 first-quarter gross domestic product report shows that residential investment accelerated from the 2012 fourth quarter and made a positive contribution to growth,” Mr Blitzer added.
The Case-Shiller index is based on a three-month average, meaning the February figure was influenced by transactions in January and December.
Las Vegas, one of the cities hit hardest by the housing bust, showed the biggest adjusted monthly increase, with prices climbing 2 per cent. It was closely followed by San Francisco, Phoenix and Los Angeles where home prices advanced 1.8 per cent. For a second straight month, all 20 cities in the index showed a year-on-year increase.
Millan Mulraine, director of US research and strategy at TD Securities, said: “Even though sales momentum is beginning to ebb, the buoyancy in prices is expected to persist as the diminished level of available inventory should continue to underpin price gains.”
There were 1.93m previously owned properties on the market last month, the fewest of any March since 2000, according to data from the National Association of Realtors. Meanwhile, the median value of an existing home rose 11.8 per cent, the most since November 2005, to $184,300 last month from $164,800 in March 2012.
Although some industry observers have questioned whether the country might be witnessing the creation of a new bubble, others have said this is not the case. While home prices have jumped year-on-year they are still well below 2006 levels of $221,900, as are levels of homebuilding.
Rising home prices have alleviated some pressure on many “underwater” homeowners – those who owe more on their homes than they are worth. Data from Corelogic, the residential property research provider, showed there were 1.1m homes in some stage of foreclosure, known as the foreclosure inventory, as of March 2013 compared with 1.5m in the same month a year ago.
“In March, completed foreclosures were down 52 per cent from the peak in 2010, and almost all of the top 100 major metropolitan areas have declining foreclosure rates,” said Mark Fleming, chief economist for CoreLogic. “The foreclosure rate nationally is down 23 per cent relative to a year ago, signalling continued reduction in the stock of distressed assets.”
The foreclosure inventory as of March 2013 represented 2.8 per cent of all homes with a mortgage compared with 3.5 per cent in February 2013.
Another data release showed consumer confidence picked up at a stronger than expected pace in April, helped by a better outlook for the US labour market and expectations for higher pay.
The Conference Board, the business organisation, said its index of consumer attitudes accelerated to 68.1 from an upwardly revised 61.9 in March. Economists surveyed by Bloomberg had expected a level of 62.
The survey questions consumers on perceptions of business and employment conditions, as well as expectations for the next six months.
Consumers’ confidence in the economy is watched closely because their spending accounts for around two-thirds of US economic activity.
“This is a welcome rebound, almost exactly reversing the March drop,” said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors. “Rising stock and home prices and cheaper gas likely are supporting confidence, but the fiscal tightening is hurting.”
Consumer spending data for March, although better than expected, showed a slowdown. Household purchases increased 0.2 per cent last month after a 0.7 per cent gain in February, the commerce department said on Monday.
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