Thursday, February 22, 2007

Home Prices Gain 1.1% in 2006

by Lawrence Yun, Senior Forecast Economist
National Assocition of Realtors (NAR)

Despite all the news headlines over the past year about the housing market bubble and housing market slump, the final figures for 2006 actually look quite respectable. Home prices squeaked out a gain of 1.1% for the year. That means that in our 39 years of tracking sales and prices, each and every year has posted positive home price growth. Existing-home sales in 2006 posted 6.48 million units – an 8.4% decline from 2005, but still the third best year on record. The more cyclical new home sales fell by 17.3% to 1.06 million in 2006 for the fourth best year on record. All in all, not that bad.

With the economy and job market performing nicely, 2007 will likely bring another respectable housing year. The number of existing-home sales will essentially match that of last year and home prices again will squeeze out a gain. As for the new home construction sector, the jury is still out. There are few additional months of adjustment left we need to wait for the high inventory of new homes to trim down before builders start to increase production.

The latest fourth quarter economic expansion was much stronger than anticipated. GDP grew by 3.5% in the fourth quarter of 2006 – compared to the 2.4% originally forecast. The job market also is stronger. A regular once-a-year benchmark revision by the Labor Department shows that it had undercounted payroll employment by three quarters of a million people for most of 2006. That’s almost like saying that all of the jobs in the Super-Bowl celebrating Indianapolis area were left out of the original count and are only now being added to the official figures.

The current unemployment rate of 4.6% and the 2.15 million net new job additions over the past 12 months are both indications that the state of the U.S. economy is all fine and good. Record stock market and record housing market valuations also lifted the aggregate U.S. household net worth to $54 trillion – the highest ever. That is five times as high as the U.S. annual consumption. In another words, we have enough wealth to buy the same amount of things and maintain the same standard of living for the next five years without even bothering to work.

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