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A house in Ohio. U.S. home prices are headed up, suggesting that a sector that has seen nothing but bad news for five years is finally beginning to contribute to the nation’s recovery. (SHANNON STAPLETON/REUTERS/SHANNON STAPLETON/REUTERS)
A house in Ohio. U.S. home prices are headed up, suggesting that a sector that has seen nothing but bad news for five years is finally beginning to contribute to the nation’s recovery. (SHANNON STAPLETON/REUTERS/SHANNON STAPLETON/REUTERS)

U.S. housing recovery spells hope for economy Add to ...

U.S. home prices are headed up, suggesting that a sector that has seen nothing but bad news for five years is finally beginning to contribute to the nation’s recovery.

The property market south of the border has been caught in a vicious circle, with falling prices causing foreclosures, which in turn cause prices to fall even further, prompting more distressed sales.

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Now, rising prices and an uptick in sales indicate the worst may finally be over. A resurgence in the sector would give a boost to the entire U.S. economy, which has been dragged down by the plunge in home construction and the devastating hit that falling home prices have delivered to the banking system and household wealth.

The biggest reason for optimism: home prices seem to be picking themselves off the mat in dramatic fashion as buyers snap up bargains. According to figures released Tuesday by the National Association of Realtors, the median price on previously owned homes sold in April rose by a healthy 10.1 per cent over the same month a year earlier, matching levels last seen in July, 2010.

“A housing recovery would be a game changer for U.S. consumers and U.S. [financial firms] who have been struggling with falling prices for five years,” said Ed Sollbach, strategist at Desjardins Capital Market.

Also helping lift spirits were home sales, which rose 3.4 per cent in April, with gains spanning all regions of the country and both single-family homes and condos.

Some regional markets reported hot numbers. In Miami, for instance, where prices have been rising for five months, the median sales price of condominiums increased 30 per cent to $150,000 (U.S.) compared to a year earlier, according to the Miami Association of Realtors and the local Multiple Listing Service system. The median sales price of single-family homes rose 8.2 per cent to $183,000.

The U.S. housing market has been in a deep funk since 2007, with prices suffering their longest decline since the 1930s. The real-estate collapse prompted a sharp fall in construction and is a major reason why the country’s rebound from the financial crisis has been disappointingly slow.

While home sales probably benefited from a mild winter, many analysts believe more fundamental factors are driving the recent rebound. Thanks to a brightening labour market, record low interest rates and high affordability, buyers are showing a new willingness to bid on properties.

The new data offer evidence “that housing market conditions may in fact be seeing fundamental improvements, with the uptick in activity more related to the firm labour market and attractive affordability conditions than just [a]temporary weather-related boost,” said David Onyett-Jeffries, economist at Royal Bank of Canada.

Capital Economics said in a report released Monday that it believes the housing bust is over, but cautioned that the recovery will be slow and prices aren’t likely to match their former peaks any time soon.

One worry in the U.S. has been that banks, caught up in the robo-signing scandal over sloppy foreclosure practices last year, might start dumping inventory of foreclosed properties on the market. But banks appear to be refraining from flooding the market with the approximately one million properties they would likely have sold over the past 18 months had the scandal not intervened.

Not everyone is buying the housing recovery story. Gary Shilling, president of A. Gary Shilling & Co., a New Jersey-based money manager, recently told his clients they should have sold their homes “yesterday if you plan to do so any time soon.”

Excess inventories are likely to push prices down another 20 per cent over the next few years, he says.

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