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Is Housing a Barometer for Economic Recovery?

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It's amazing what qualifies for good news during the nation's longest post-War recession on record. Yesterday, the S&P/Case-Shiller Home Price Index for May indicated that after almost three long years, we're finally seeing the early signs of price stabilization in housing.

The report showed the first month-to-month gain in 34 months, with three-quarters of the areas surveyed showing improvement or steady prices. That said, it's important to have context. Housing prices are down 17% from a year ago and we're now at levels consistent with those of 2003--who said that home prices never go down?

Still, the improvement in prices follows three other pieces of housing news reported recently: June Housing Starts were up 3.6%, June Existing Home Sales rose 3.6% and June New Home Sales increased by 11%. Same deal with all of these reports--the general year over year looks ugly, but the month over month shows signs of life. One more thing: the margin for error on housing stats is huge.

Considering that housing and credit led us into this crisis, is it safe to assume that the recession is over and we're on the precipice of economic recovery? We won't know until the folks at the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) tell us so. The NBER is the official arbiter of the beginning and end of recessions. Last week, even econo-bear Paul Krugman said that the Dating Committee may find that July marked the end of the recession, which started in December, 2007.

Assuming that the recession ends, what does that mean for you? That's what Harry Smith of the CBS News Early Show wanted to know this morning.

Even if the recession is "officially over," there will be some clear hurdles ahead:
  • EMPLOYMENT: Job loss is tapering off, but new jobs will be hard to come by for some time, so don't get too cocky with your boss. Also, get used to your current salary, because wages will continue to stagnate until there is more significant growth in the economy.
  • INTEREST RATES: Don't freak out when rates rise--the Fed will have to raise them in order to contain inflation. That said, lock-in fixed rates now and pay down credit cards as soon as possible.
  • HOUSING: Although prices are turning, don't expect a return to the bubble years. If you need to sell, it may be better to do so while interest rates are low and the first time home buyer credit exists. For the same reasons, if you can afford to pull the trigger and buy, get busy!

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