Housing Recovery at Last? Evidence Mounts

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While experts continue to warn that housing has not yet hit bottom, a slew of indicators suggest otherwise. The latest is a stellar quarterly earnings report from Home Depot, which is benefitting from hopeful owners sprucing up for the spring selling season.

Home Depot said Tuesday that net income jumped 32% for the quarter ending Jan. 29, blowing past Wall Street estimates. Top-performing store categories included electrical supplies, building materials, paint, lumber, lighting and flooring. Also strong: gutters, roofing and vinyl siding.

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The company saw more shoppers: Number of transactions rose 3.6%. Shoppers spent more: The average customer ticket rose 2.4%. Meanwhile, the number of customers who spent more than $900 rose 3% as those who spent under $50 rose just 1.3%.

Good weather and pent-up demand for improvements from recession-weary homeowners may help explain the results. But an unmistakable sense of optimism underlies this activity. Yes, there are always high hopes for housing at this time of year. Yet people generally do not make a big investment in their home unless they feel they have equity and it is secure. Among other hopeful signs:

  • The job market is improving. Last month, unemployment hit its lowest level in three years. The unemployment rate has improved five months in a row.
  • Homebuilder sentiment in February climbed to its highest level in nearly five years.
  • Housing stocks are soaring. The stock market isn’t always right. But it often predicts developments six to nine months down the road—and companies that build houses have seen share prices increase 60% since October. Home Depot stock has rallied in similar fashion, in part because people who buy homes tend to spend money fixing them up.
  • New housing starts in January nearly matched November’s three-year high.
  • Sensing a turn, big investors are buying mortgage securities as eagerly as they once sold them. “There is light at the end of the tunnel,” Kenneth J. Taubes, the head of United States investment for Pioneer Investments, told The New York Times. “The mortgage crisis is getting behind us, and things are getting back to some semblance of normality.”
  • State and federal authorities have reached a $26 billion settlement with big banks that is expected to provide some mortgage relief and possibly ease the foreclosure nightmare.

Yes, we’ve seen false bottoms before. The foreclosure mess, especially, still hangs over the market. But housing downturns like this one end at some point—and most people are surprised when it happens. Keep an eye on mortgage rates. If they start to move up it may push buyers to act before they miss the lowest rates on record—and then higher prices would follow.

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