Housing Booms

Housing Booms

This is part of a recurring column from Merrill Lynch wealth management advisors David Menashe and Bruce Morley, who have both worked in Rancho Santa Fe, CA for more than 28 years.

One of the greatest drags on the economy the past 4 years has been the housing slump, but indicators continue to improve. According to the National Association of Realtors, existing home sales rose 7.8% in August, median prices rose 9.3% year over year, and inventories in some markets have actually become tight. This has spurred new home builders who broke ground on an annualized 750,000 homes last month, hitting their best level in more than two years.

The recovery could remain a bumpy one as banks are still reluctant to lend to all but the best credits, but a potential game changer is the rising value of mortgage assets. If property values continue to rise, it would allow banks to “write-up” their mortgage portfolios. This strengthening in bank balance sheets would likely encourage more lending and lead to a virtuous cycle in US real estate. Although we are not there yet, trends are encouraging.

The Federal Reserve’s recent announcement that they will continue to purchase mortgages should keep interest rates low, keep housing affordable, and further fuel the recovery. The housing slump has been a key economic leak that may now be plugged leading to more robust housing activity in the next 3-5 years. (858.381.8113)

David Menashe is a Senior Vice President-Wealth Management and Wealth Management Advisor, and Bruce Morley is a Vice President and Wealth Management Advisor, for Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered broker-dealer, Member SIPC, and a wholly owned subsidiary of Bank of America Corporation. Investment products Are Not FDIC-Insured, Are Not Bank Guaranteed, and May Lose Value.

Photography by Andy Templeton