Nepal – the country of the Buddha and the Mt. Everest

Peace comes from within. Do not seek it without – Buddha

Good News from the Construction Industry — But Will Housing Take Off?

Posted by Ram Kumar Shrestha on July 19, 2012


A construction worker installs a window in a new home at the Arbor Rose housing development on July 18, 2012 in San Mateo, Calif.

JUSTIN SULLIVAN / GETTY IMAGES
A construction worker installs a window in a new home at the Arbor Rose housing development on July 18, 2012 in San Mateo, Calif. The Commerce Department reported that housing starts surged 6.9% in June, the highest increase since October 2008.

While Ben Bernanke spent the past couple days on Capitol Hill delivering some dour predictions for U.S. economy, the one sector in America actually pulling its weight these days — housing — had a pretty good week.

 

Yesterday, the Commerce Department reported that housing starts were at a seasonally adjusted level of 760,000 — a four-year high, 6.9% higher than last month, and 16.8% higher than the year before. New building permits dropped from the month previous, but were still nearly 20% higher than they were last year.

This positive news echoed Tuesday’s confidence survey from the National Association of Home Builders, which rose six points to 35 for July.  While it takes a reading over 50 to indicate healthy market conditions, the gain was the largest the survey has seen in ten years and the measure put builder confidence at its highest point since March of 2007 — just months after the housing bubble reached its peak.

(PHOTOS: ‘No Place Like Home: Foreclosures in America’)

These two pieces of news reinforce the narrative that the housing market is finally recovering after six long years of falling prices and tepid demand. It appears that prices have finally hit levels that represent the true value of the underlying properties, and this coupled with historically low mortgage rates has motivated capable investors to enter the market once again.

After the good news this week, The Atlantic’s Matthew O’Brien wrote, “Let’s call it a housing recovery.” Indeed, even the Federal Reserve Chairman himself, Ben Bernanke, pointed to housing as the one demonstrably vital area in an otherwise anemic economy. In his testimony to Congress this week he said:

“We have seen modest signs of improvement in housing. In part because of historically low mortgage rates, both new and existing home sales have been gradually trending upward since last summer, and some measures of house prices have turned up in recent months. Construction has increased, especially in the multifamily sector.”

(MORECan the Economy Get Healthy Without a Housing Recovery?)

But it’s not all sunshine and rainbows for the housing market. Yes, the free fall has stopped, but much of this good news only appears good because of the desperate lows the sector is rebounding from. In addition, there are still a large number of foreclosed homes that banks are reportedly keeping off the market in order to prop up prices. According to mortgage banker Julian Hebron, “when foreclosure inventory is artificially lowered by banks pausing on foreclosures, home prices look higher because fewer distressed sales put less of a drag on pricing.”

In addition, though the broader housing market is doing much better than during the immediate post-bubble collapse years, there are plenty of areas of the country where home prices are still falling. According to a report issued this week from the New York Fed, roughly half of the counties in America are saddled with still-declining prices. The report also showed that housing transaction volumes are still far below normal, and that the percentage of sales that are distressed (either foreclosure sales, short sales, or deeds in-lieu) are far higher than what would imply a healthy market.

And of course, a general downturn in the economy spurred on by a financial crisis in Europe or by a slowdown in emerging-market economies would surely put a damper on the nascent housing recovery. In short, what we have on our hands is a convalescing but still frail housing market. Yes, the fever has broken — but  it’s not time for the patient to get up and start walking around just yet.

MORE: Has the Housing Market Finally Hit Bottom?

Read other related stories about this:

@TIME

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: