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U.S. sales and spending numbers show housing rebounding as Scotiabank report cites tentative but growing signs of stability in many countries
Globe and Mail and The Associated Press
Real estate markets around the world are showing tentative signs of stability and this, in turn, will boost broader economic activity, Bank of Nova Scotia said Thursday.
“Home ownership is a crucial sector of national economies and an important source of wealth for many households, influencing spending, saving and borrowing decisions,” Adrienne Warren, the bank’s senior economist, said in a report on global real estate trends.
“It also has significant spillovers to other domestic industries, including retail sales, finance and insurance, and a range of professional services (legal, engineering) and household services (landscaping, moving, cleaners),” she wrote.
The report came as fresh numbers released Thursday in the United States provided yet more evidence that the U.S. real estate market is healing.
The volume of signed contracts to buy previously occupied homes in the United States rose for the seventh straight month in August as buyers rushed to take advantage of a tax credit for first-time owners that expires at the end of November.
The National Association of Realtors said its seasonally adjusted index of sales agreements rose 6.4 per cent from July to 103.8. It was the highest since March 2007 and 12 per cent above a year ago. Economists surveyed by Thomson Reuters expected the index would rise to 98.6.
Typically there is a one- to two-month lag between a contract and a done deal, so the index is a barometer of future sales. However, new rules for home appraisals and rigid lending standards have scuttled many sales agreements recently.
A separate U.S. government report Thursday showed construction spending rose in August as housing leaped at the fastest pace since 1993.
Scotiabank said it believes the improving sentiment in global real estate markets is sustainable. “The firming in pricing is evidence of growing confidence in the sustainability of the fledgling global economic recovery.”
Historically low borrowing costs, increased affordability and home-buyer tax incentives in a number of countries have underpinned this “modest revival” in housing demand, the bank said.
“Indeed, signs of a bottoming in home prices are likely now bringing some fence-sitters off the sidelines,” Ms. Warren said in her report.
“Real home prices increased in a number of major developed economies in the second quarter of 2009, including Canada, Australia and the United States,” Ms. Warren said.
“Prices were still falling in many other markets, including the U.K., France and Spain, but generally at a slowing rate. For the most part, however, real home prices are still lower relative to a year ago.”
Scotiabank added that, while not as strong as the resale housing revival, new home building in Canada is improving.
“On a trend basis, housing starts are running just over 140,000 annualized units, up from a spring low of around 120,000,” the report said. “Most regions are showing gains, with the largest improvement in Canada’s four western-most provinces.”
Still, Scotiabank cautioned, the recovery will be gradual.
“The rebound in housing activity will be constrained, in part, by a generally more cautious borrow and spend mentality, with weakened household finances leading to a renewed focus on reducing debt and rebuilding savings,” Ms. Warren said.
“Labour market conditions are beginning to stabilize, but unemployment rates remain high and are expected to be slow to decline. A more cautious lending environment is expected to persist as financial institutions around the world recapitalize their balance sheets.”