Dr. Chuck Ray What is the most promising story of 2012? According to Time magazine, it's The Great Housing Rebound of 2012.
"Without a doubt, the U.S. housing market has been the most successful sector of the economy this year, and Wednesday’s Case-Shiller home price index report — which showed a fifth consecutive month of year-over-year increases in home prices nationwide — was a late Christmas present for homeowners across the country.
The housing market “bottom” was one of the biggest business stories of 2012. After years of falling home values, the data clearly showed that the bleeding stopped somewhere in the first part of 2012, and that home prices have actually begun to slowly rise since then. In addition, other indicators like housing starts, new home sales, and foreclosure statistics all point toward a healing housing sector.
These dynamics have gotten some economists and market analysts excited about the growth prospects for the U.S. economy in 2013. Robert Johnson, director of economic analysis for Morningstar, called housing, “the big change factor in 2013,” and believes that “direct housing investment will be a meaningful contributor” to economic growth in 2013. He also sees industries related to housing — like furniture manufacturing and sales — adding to economic growth in 2013 as the housing market begins to pick up."
Not mentioned was that the Case-Schiller report included the news that even though there was indeed a fifth consecutive month of year-over-year housing price gains, 12 of the 20 cities in the survey reported lower prices in October than in September. In other words, prices are better than last year, but they're still soft in most places. And they have a long way to go to recover the price paid for most homes purchased in the last decade.
There was a lot of this type of hype about the "housing recovery" in 2012, but mostly that is all it was...hype. The (slightly) increasing number of housing starts is being fueled by investors taking advantage of ultra-low interest rates and an upturn in multi-family housing for rental property. Most Americans, however, are still absent from the housing market, buyers due to extremely tight credit conditions and sellers due to the still-suppressed pricing of housing in most regions of the country. Annual housing starts data, which showed an increase of more than 10% in 2012, is still only about half of what used to be considered a healthy level of housing activity.