Building momentum

My family has spent summers at Lake James, Indiana, for time out of mind. Many of the lake cottages there were built in the early part of the last century, when you could buy a lot for $50.

These were fishing cottages, mostly: A step above camping in that the roof was unlikely to blow off, and you could cook inside. Over the years, owners added niceties like plumbing and extra bedrooms.

Now many of those cottages are being torn down to make way for starter castles, with guest houses, enormous boat lifts and even widow’s walks. If there’s a building boom in this corner of Northern Indiana, what does that tell us about the housing market overall?

Things appear to looking up, at least according to the National Association of Home Builders’ latest survey, which registered 59 in June, up from 54 in May, and the highest level this year. Any reading above 50 indicates that home builders feel the market for new homes is good.

“The HMI indices measuring current and future sales expectations are at their highest levels since the last quarter of 2005, indicating a growing optimism among builders that housing will continue to strengthen in the months ahead,” said NAHB Chief Economist David Crowe. “At the same time, builders remain sensitive to consumers’ ability to buy a new home.”

fredgraphOne reason builders could be feeling optimistic: New home starts jumped 20.2% in April. Existing home sales also had a big bounce in May, up 8% from a year earlier. Both measures are a long way from their bubble tops, but that’s a good thing.

Housing busts take a long time to work out, because defaulting on a loan, foreclosing on the home, and getting it re-sold is a tedious business. And as the market tanks, people take their homes off the market and wait for the next boom, which means that actual inventory (from foreclosures) and theoretical inventory (from discouraged sellers) grows dramatically. In an environment where people are not getting raises and are worried about losing their jobs, a new or used home is a tough sell indeed.

But the number of homes in foreclosure are the lowest since 2007, and the employment situation, while tepid, is getting a bit less lukewarm. While mortgage rates have moved up this week, housing booms seem to be more of a matter of consumer confidence, demographics and employment than interest rates. If you were thinking of buying or selling a home, even outside of Indiana, this might be a good time to do so.


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