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US Housing Market Improving, Recovery Taking Hold

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While the recovery of the labor market is well below its potential, the housing market is poised to overcome.

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Another factor supporting the housing recovery is that home prices have fallen to a point where it is substantially cheaper to own than to rent. The chart below shows the ratios of home prices to rents and to median family income. The combination of lower prices and extremely cheap credit mean that barring a severe self-induced recession more rational consumers should continue to overcome their "housing hangover" at a faster rate and get back to buying real estate.





(Source)

As a result, we have begun to see prices stabilize and even begin to increase nationally. Continual home-price increases are critical to a sustainable overall economic recovery as they have a powerful positive effect on household balance sheets and consumer confidence and thus are a key driver of consumer spending and future economic expansion.



Source: US Trust Housing Liftoff July 2012 – Corelogic; Federal Housing Finance Agency; National Association of Homebuilders; National Association of Realtors, Standard & Poors/Haver Analytics

So, while the recovery of the labor market is well below its potential, the housing market is poised to overcome. Strengthening fundamentals resulting from years of below-trend investment, favorable demographics/household formation rates, and cheap credit combined with prices at generational lows mean that not even the best effort from our elected officials should be able to stop what should be a slow but consistent improvement in the housing sector.

Twitter: @joshuaschroede2

Editor's note: This article originally appeared on investing and economics site, See It Market.
No positions in stocks mentioned.
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