Upward Housing Market Trends Bring Optimism

By May 24, 2012, 9:21 AM Author's Blog  

Last December I wondered if the housing market was finally poised for a sustainable recovery after years of retreat. There were signs for thinking optimistically then and the latest numbers continue to suggest that mild growth will roll on.

Comparing three key measures of housing activity through April on a year-over-year basis shows that the trend is still up. Housing starts, new one-family houses sold, and newly issued building permits were higher last month by roughly 10% to 30% vs. their year-earlier levels. Even better, the growth rates have been climbing for a year or so. It’s not a smooth revival–it never is–but it’s hard to miss the general change for the better. In addition, existing home sales rose in April and remain above year-ago levels as home prices continued to rise, the National Association of Realtors reports.

Upward Housing Market Trends Bring Optimism

No one will confuse the recent numbers with a healthy market or robust growth. Once you consider the deep and prolonged correction that real estate has endured over the last six years, it’s clear that the market is still digging itself out of a very deep hole. And the digging will go on for some time, probably for years. But the light at the end of the tunnel, if we can call it that, is the growing recognition that housing is no longer a negative overall for the broader economy.

The sector’s positive contribution may be slight and precarious, but the fact that housing appears to have finally transitioned to a modest net plus is a helpful change that’s more than trivial for such a substantial piece of the economy. As much as 18% of GDP is linked to the housing sector, according to the National Association of Home Builders.

“The recent buoyancy in housing market activity has raised hopes that this beleaguered sector may finally be on the verge of a rebound,” Millan Mulraine, senior macro strategist at TD Securities, tells Reuters.

Dan Green, a loan officer with Waterstone Mortgage, writes that real estate generally has finally turned the corner:

Since late-2011, the housing market has been improving. Steadily, home sales have moved higher; builder confidence has reached multi-year heights; and, in many U.S. markets, home values have climbed. On a month-to-month basis, it’s hard to spot longer-term trends. Beginning this month, it should become easier.

We’re only now beginning to see the effects of the government’s massive market interventions. As the housing market improves through 2012, 2013 and 2014, we’ll look back at Spring 2012 and dub it the “turnaround”.

We may still be a long way from witnessing strong growth in real estate on an across-the-board basis. Many regions continue to suffer from a glut of excess inventory. Meanwhile, prices are still soft if not falling in some corners of the country. But the fact that housing is improving, if only slightly, is a big deal for the overall health of the economy. Even a weak and vulnerable run of healing is a substantial change for the better vs. the deep contraction that weighed on growth generally. If nothing else, the ongoing recovery in real estate is one more reason for expecting the expansion in the broader economy to continue.

“It’s very clear now that the housing market has turned a corner,” advises Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston, via Bloomberg. “The only question is how strong the rebound is going to be. It bodes well for the broader economy.”

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