The housing
market has turned—at last.
The U.S.
finally has moved beyond attention-grabbing predictions from housing
"experts" that housing is bottoming. The numbers are now convincing.
Nearly seven
years after the housing bubble burst, most indexes of house prices are bending
up. "We finally saw some rising home prices," S&P's David Blitzer
said a few weeks ago as he reported the first monthly increase in the
slow-moving S&P/Case-Shiller house-price data after seven months of
declines.
Nearly 10%
more existing homes were sold in May than in the same month a year earlier,
many purchased by investors who plan to rent them for now and sell them later,
an important sign of an inflection point. In something of a surprise, the
inventory of existing homes for sale has fallen close to the normal level of
six months' worth despite all the foreclosed homes that lenders own. The
fraction of homes that are vacant is at its lowest level since 2006.
The reduced
inventory of unsold homes is key, says Mark Fleming, chief economist at
CoreLogic, a housing data-analysis firm. For the past couple of years, house
prices have risen in the spring and then slumped; the declining supply of
houses for sale is reason to believe that won't happen again this year, he
says.
Builders
began work on 26% more single-family homes in May 2012 than the depressed
levels of May 2011. The stock of unsold newly built homes is back to 2005
levels. In each of the past four quarters, housing construction has added to
economic growth. In the first quarter, it accounted for 0.4 percentage points
of the meager 1.9% growth rate.
"Even
with the overall economy slowing," Wells Fargo Securities economists said,
cautiously, in a note to clients, "the budding recovery in the housing
market appears to be gradually gaining momentum."
Economists
aren't always right, but on this at least they agree: A new Wall Street Journal
survey of forecasters found 44 believe the housing market has reached its
bottom; only three don't. (The full results of the Journal's July survey will
be released at 2pm ET)
Housing is
still far from healthy despite the Federal Reserve's efforts to resuscitate it
by helping to push mortgage rates to extraordinary lows: 3.62% for a 30-year
loan, according to Freddie Mac's latest survey. Single-family housing starts,
though up, remain 60% below the 2002 pre-bubble pace. Americans' equity in
homes is $2 trillion, or 25%, less than it was in 2002 and half what it was at
the peak. More than one in every four mortgage borrowers still has a loan
bigger than the value of the house, though rising home prices are reducing that
fraction slowly.
Still, the
upturn in housing is a milestone, a particularly welcome one amid a distressing
dearth of jobs. For some time, housing has been one of the biggest causes of economic weakness.
It has now—barely—moved to the plus side. "A little tail wind is a lot
better than a headwind," says economist Chip Case, the "Case" in
Case-Shiller.
From here on,
housing is unlikely to drag the U.S. economy down further. It will instead
reflect the strength or weakness of the overall economy: The more jobs, the
more confident Americans are about keeping their jobs, the more they are
willing to buy houses. "Manufacturing had led growth and construction had
lagged," JPMorgan Chase economists said last week."Now the roles are
reversed: Manufacturing growth has slowed as private construction comes to
life."
Plenty could
go wrong. The biggest threat is a large shadow inventory of unsold homes, homes
which owners won't put on the market because they are underwater, homes that
will be foreclosed eventually and homes owned by lenders. They have been
trickling onto the market, slowed in part by government efforts to delay
foreclosures; a flood could reverse the recent rise in prices. Or the
still-dysfunctional mortgage market could get worse. Or overly zealous
regulators or a post-election change in government policy could unsettle
mortgage lenders or home buyers.
But the
housing bust is over.