Pethokoukis, Economics, U.S. Economy

The return of housing in 2 charts

032013housing1

Economist Ed Yardeni:

The US economy is following our “Second Recovery” scenario, in which the long-delayed recovery in housing finally occurs. Residential construction has always led the way during previous economic recoveries. This time the economy recovered, with residential investment weighing on rather than lifting real GDP. The recent upturns in housing starts and building permits … indicate that housing will boost real GDP this year. In addition, consider the following:

(1) The rebound in home building is a powerful source of economic growth since it stimulates construction employment, which is up 169,000 over the past nine months, and 135,000 the past four months. Also getting a boost are numerous housing-related industries including building materials, realty, and mortgage finance.

(2) Another big positive for the economy is rising home prices. Residential real estate is probably the most highly leveraged asset in the portfolios of most homeowners. So a 10% increase in home prices will raise homeowners’ equity by much more. A recent CoreLogic report said there were 1.7 million fewer homes considered underwater in the fourth quarter of 2012 than there were in the same period in 2011. The percentage of homes worth less than what was owed on their mortgages fell from 25.2% at the end of 2011 to 21.5% a year later, the report said.

 

Residential investment added to GDP last year for the first time since 2006. Interesting to see how the housing recovery affects US internal migration, which seems to be on the upturn after the big freeze caused by the Great Recession.

032013housing2

17 thoughts on “The return of housing in 2 charts

  1. Of course there are some meaty issues on the table:

    1. – how do we NOT repeat the sub-prime meltdown?
    what govt policies should change (or not)?

    2. – when we talk about getting rid of “loopholes” that incentivize the wrong things – does that include the mortgage interest deduction and inputed rent ?

        • Canada’s housing is also overvalued but what saves the system for a while is the fact that Canadians can’t walk away as easily as Amerians. It also helps for most Canadians to have much more than 20% down into their homes and for the influx of people from Asia and the Middle East to be cash rich. The big problem comes from the huge debt levels among the provincial governments and individuals. Eventually that will cause a problem and you will see all kinds of defaults.

          • Lived in Toronto, too. There is much hand wringing about an overbuilt condo market, but regional planners had minimized the downside, largely by dragging their feet on mass transit and road construction. Because you can’t get there from here, close in neighborhoods remain golden. Unfortunately, that means you should have bought in 1985.

          • Lived in Toronto, too. There is much hand wringing about an overbuilt condo market, but regional planners had minimized the downside, largely by dragging their feet on mass transit and road construction. Because you can’t get there from here, close in neighborhoods remain golden. Unfortunately, that means you should have bought in 1985.

            I did. Condo prices then went on and crashed in 1987 and bottomed out 50% lower than the 1987 peak around 1992. They began to creep up around in the mid a990s but didn’t really start to move much until after 2001 when the Fed did its liquidity injections and blew up a housing bubble in the US. While prices are near all time highs a two bedroom 1900 square foot condo with a decent view of the lake can still be had for under $1.3 million. Adjusted for inflation or pricing it out in ounces of gold that is still well below the previous peaks.

  2. Residential investment added to GDP last year for the first time since 2006. Interesting to see how the housing recovery affects US internal migration which seems to be on the upturn after the big freeze caused by the Great Recession.

    Housing is not doing as well as you might think Jimmy. It is simply driven by false demand created by the Fed’s purchases of mortgage securities and the access to free money by hedge funds and the big financial institutions as well as foreigners looking for a way to reduce their USD holdings. There is no sustainable recovery because that would mean an increase in rates that takes the whole system down.

  3. Meh. Dead cat bounce. Watch unemployment. Everything begins and ends with (REAL) unemployment levels. Interest rates are effectively zero. What happens to home values if (can’t say “when” as long as Helicopter Ben is in charge) interest rates are allowed to rise.

    • Gotta disagree. Post-bust, aggregate prices swung too far in the opposite direction, as markets are wont to do. If you had four houses on your street in various degrees of foreclosure neither the banks nor buyers would give you any premium. Move the distressed properties and suddenly it’s a different story.
      That said, builders won’t be back to the good old days any time soon. The homeowners who took out seconds during the boom to remodel and expand have already done their moving up. And the regulations put in place by many local jurisdictions to discourage growth remain in place. In those areas, though, prices will recover faster. I’m sure you have seen stories about houses selling in a weekend in tight markets.

      • Gotta disagree. Post-bust, aggregate prices swung too far in the opposite direction, as markets are wont to do. If you had four houses on your street in various degrees of foreclosure neither the banks nor buyers would give you any premium. Move the distressed properties and suddenly it’s a different story.

        Most of the properties that are behind have not gone through foreclosure and have yet to be moved.

        • True, but we are seeing the proverbial light at the end of the tunnel. I’ve lived through two regional crashes: Florida in the mid ’70s and Texas in the late ’80s. All buyers and lenders need is some comfort that the worst is over and then greed takes over.

          • You are seeing the light because the Fed is buying $45 billion in mortgage paper every month and the same in USTs in order to keep rates low. That is not the basis of a sound market.

          • Just talking about recovery from distress-sale prices. Bottoms are easy. Tops are much harder.

          • A true recovery requires the market to run its course. That did not happen with housing because the Fed stepped in and intervened in the market. What you have is a dead cat bounce that is brought to you by the Fed’s purchases of mortgage backed securities and zero interest rate policies. The only way that housing nominal prices keep recovering is to have the Fed devalue the purchasing power of the USD. While that may help a few people who carry massive amounts of debt the increase in prices will hurt everyone else.

          • The Fed’s manipulation of the interest rates is making it possible for these sales to take place. Not only are the central banks making it easy for large financial institutions and hedge funds to borrow at very low costs they are also creating a ‘favourable’ environment by suppressing the interest rates. All that it would take for the Fed and Treasury to blow up would be a normalised interest rate environment.

  4. If you are all to chicken to invest in housing that is your lost oppurtunity.Anyone who had the means and guts to invest in homes during the depths of the housing collapse,are now and will continue to reap the rewards from rising house prices.With that being said,please mr bernanke don’t screw me by pulling the punch bowl away.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>