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Housing Boom?

Are you ready for a new housing boom?  It’s OK, I thought you might need a chuckle today.  But there are some analysts who seriously expect housing to lead the economy out of the slump of the last five years … much as it showed the way into this mess in the first place.  It’s probably overstating the upside dramatically, but there are signs of recovery or at least stability in the housing market overall.  It’s uneven and just starting, but this may be the latest sign that we are, in fact, more or less at the bottom right now and starting to turn up.

Why would anyone think housing is about to turn up?  Several pieces of data are looking better than they have in five years.  The first is that “shadow inventory”, or houses about to come on the market, are down 10% over the last year and expected to keep dropping.  That means that supply is at least getting an edge on demand.  The other important piece is the Fed’s commitment to low interest rates on mortgages, or a healthy dollop of wishful thinking.  But the most encouraging news is that foreclosures are at a five year low, dropping to 180k in September.  That’s still a terrible number, but the number entering the foreclosure process also dropped – to 88k.  The trend is definitely going down from over 260k per month starting the process in 2008.

The time it takes to process a foreclosure is up to 382 days, which is why the foreclosure number is so much higher than foreclosure starts.  But the inventory hitting the housing market is going down and should keep going down.

That doesn’t necessarily add up to a boom, but the average 1.5% rise in home prices in July (the most recent month available) has analysts cheering.  At the very least we are seeing stability, roughly keeping pace with inflation.  After five years of dismal news we can’t blame them those in the trade for wanting to celebrate something – even if they are probably getting ahead of themselves with the “boom” talk.

Taken together, the picture from jobs data and housing collaborate with each other.  Both are showing a rough bottom of stability with very slow growth roughly at pace with the growth in population or inflation, as appropriate.  This is logical because the main drag on the housing market, and the source of the tremendous wave of foreclosures, was job loss.  Stability in jobs leads to stability in housing.

Given that we have an election coming up it’s hard to be excited about the current situation.  No one ever produced a campaign commercial proclaiming “We are currently at the bottom!”  But after so many years of Depression and struggle, it’s a very hopeful sign all around.  It’s yet more evidence that with a small bit of attention to detail and a commitment to get the federal government’s finances in order, whoever is the next president is likely to look like a genius by 2016.  The stakes in this election could well be many years of victory for whichever party manages to claim that their policies were responsible for what is about to come.  (Note:  neither one is going to actually be responsible, it’ll just look like it.)

But that’s also getting ahead of the situation.  As good as things seem right now, they aren’t exactly “good” yet.  Like the housing analysts proclaiming a boom is in the works, anyone taking this data and mixing it with the struggling jobs picture and calling victory is way overstating the situation.  But season the stew of numbers with a pungent belief in business cycles eventually pulling everyone up and we might yet have another free lunch in the works.

Optimistic?  Absolutely.  Don’t bet too heavily on anything yet.  But it sure could be a lot worse than it is right now – and it was just a few years ago.  Let’s not forget that.

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16 thoughts on “Housing Boom?

  1. Your blog was down earlier today. This sounds totally ridiculous but with interest the lowest ever it may be that it is loosening up. I will believe it when I see it though. This looks really premature right now.

    • It seems pretty out there to me, too, but it’s moving with the job market. That makes sense. I take this kind of talk entirely as proof that the data we’re reading on employment – slow but steady gains – is correct.
      Declaring victory in either market would be premature, yes. I think we’re still very close to a (flattish) bottom.

    • Good for you! :-)
      As much as I’d like to give Obama credit, I have come to believe that we are simply waiting out the secular bear market.

  2. The news media like to report on the real estate industry. They never consider seasonal variations or the fact that we hit bottom late last year and being up a bit from the bottom does not a housing recovery make but it does make for some exciting news.

    • Thank you. That was how I was reading this – take away the breathless pronouncement of a new boom and it seems like things are at least going the right way. You and I have talked about how the job loss fueled the bust in the first place, so what you’re telling me here is that real estate is following employment pretty closely – just as you said it would. At least everything makes sense!

      Thing is, in a “normal recession” job gains lag the general pick-up in the economy – but we’re seeing the opposite today. People need work before it will turn around. Avoiding words like “Depression” and fancy terms like “Kondratieff Winter” is one thing, but we can be sure this time is definitely different than what we have experienced in our lifetimes. That’s what’s important.

  3. The “boom” claim is VERY far-fetched and overly optimistic, IMO, but taking a close look at a few major metro markets (like Phoenix, San Diego, etc.) can serve as an eye-opener. For-sale inventory is WAY down, demand is WAY up, and with supply & demand forces at work, prices are on the rise in those markets. I for one do NOT believe we’re headed for another national ‘runaway’ like we had in 2004-2006, but there are clearly some economic factors to support the case for a stabilization of the real estate market – at least in some parts of the country.

    Great, timely post, Erik!

    • Thanks! I agree, there is no “boom” in sight. But stability is a good thing, and I can’t say it often enough – it follows stability in jobs. That’s what Teresa Boardman said to me years ago and she was right! But that’s backwards from a “normal” recession.

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  5. I was kidding about being for Obama. Just wanted to see if anyone was awake. ; )

    Sorry to disappoint all you left liberal progressive Paul Simon Ted Kennedy Paul Wellstone folks.

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