Is Housing a Barometer for Economic Recovery?

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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Comments

[Polly]

This is ridiculous, it's over housing has evened off. My husband & I have made our living as self employed home remodelers for over 30 years, we have never had it so slow - no business. People will not spend on their homes until 1) value is there 2) loans are available, neither of which is happening now.

[Weathermaker]

Housing was not the cause of the current recession, debt was. In the last 30 years or so we took more and more debt to maintain our unsustainable standard of living. Currently the total debt outstanding in this country is a staggering 400% the GDP and I'm not even considering here how fudged the GDP numbers are or the tens of trillions of dollars in government liabilities (SS but mostly medicare). To service this debt, normal economic growth is no longer enough. Even assuming an unrealistic average interest of 2.5%, the interest alone amounts to 10% GDP. For a while, we tried to boost the growth to keep up with the interest on our debts. How did we do this? By talking higher and higher risks in our economic decisions. We've deliberately inflated bigger and bigger bubbles and now we hit the wall. Even if we return to say 3-5% growth, it is not enough. The interest on our debt alone will outstrip any growth, making us poorer and poorer every year.

This is the legacy of the baby boomers, the most destructive and selfish generation in the US history. I think it is pretty safe to say that my generation's future was put into McMansions and SUVs. Debt is a claim on future labor, and with the baby boomers soon in retirement, they are in no position to fulfill their obligations.

[getsmart85]

Unless we develop multiple, competitive industries that can export quality products and employ 6 million plus people, the real estate gig is up. "Positive" statistics are aberrations. Prices are up because banks are delaying foreclosures and many states have moratoriums on foreclosures. Besides, the positive statistic is based on a month to month increase. A May to June increase is typical.

If there are no incremental jobs and wages are declining how can real estate prices increase? Prices increased from 2001 to 2005 because our govt juiced housing. A synthetic upturn was created and Wall Street exploited the situation. What now?

Unfortunately, the only thing the US exports is synthetic optimism (AKA BS).

[Social Construct]

The "Employment" segment of the picture of economic health worries me. For the past 30 years haven't wages, arguably, been stagnant (in buying power) or even on a slight decline? So, if the economic movers and shakers have used flat wages for so long in the past as a financial control tool, are we in for more of the same? And what does this possible scenario say about the state of the Union for the years to come?

[BannedNBoston]

Main street is hurting the commercial real estate crash is coming.
The plunge protection team cant keep anything propped up in 4 months.
The only thing going up is food and gas.

[dnpvd51]

Your advice to buy a house is way off base.

You should buy when interest rates are high and the government is not pouring trillions into the market to shore up prices.

The idea is to buy when prices are low not when interest rates are low.

Further it is a real contradiction to suggest it is both a time to sell and a time to buy. What is that about?

[FoonTheElder]

One month does not a recovery make. Especially when it comes to housing when consumer confidence is still in the dumper. This points to speculators and investors buying up houses as opposed to the general public.

http://voices.washingtonpost.com/economy-watch/2009/07/consumer_confidence_drops_whil.html?hpid=topnews

[Stephen C. Rose - Huffpost Blogger]

Housing did not create the crisis. Metrosprawl. idolatry of oil and similar depth causes were in play. Sustaining the pattern of human settlements we have now, car dependent, is a recipe for continued recessions. Even the idea of not bouncing back completely solves nothing. The solution lies in thinking Christopher Alexander and collaborators did in Pattern Language. Communities of sufficient density to enable local, pedestrian commerce.

http://stephencrose.wordpress.com