The housing market has turned—at last.
The U.S. finally has moved beyond attention-grabbing predictions from
housing "experts" that housing is bottoming. The numbers are now
convincing.
Nearly seven years after the housing bubble burst, most indexes of
house prices are bending up. "We finally saw some rising home prices,"
S&P's David Blitzer said a few weeks ago as he reported the first
monthly increase in the slow-moving S&P/Case-Shiller house-price
data after seven months of declines.
Nearly 10% more existing homes were sold in May than in the same
month a year earlier, many purchased by investors who plan to rent them
for now and sell them later, an important sign of an inflection point.
In something of a surprise, the inventory of existing homes for sale has
fallen close to the normal level of six months' worth despite all the
foreclosed homes that lenders own. The fraction of homes that are vacant
is at its lowest level since 2006.
The reduced inventory of unsold homes is key, says Mark Fleming,
chief economist at CoreLogic, a housing data-analysis firm. For the past
couple of years, house prices have risen in the spring and then
slumped; the declining supply of houses for sale is reason to believe
that won't happen again this year, he says.
"Even with the overall economy slowing," Wells Fargo Securities
economists said, cautiously, in a note to clients, "the budding recovery
in the housing market appears to be gradually gaining momentum."
Economists aren't always right, but on this at least they agree: A
new Wall Street Journal survey of forecasters found 44 believe the
housing market has reached its bottom; only three don't. (The full
results of the Journal's July survey will be released at 2pm ET)
Housing is still far from healthy despite the Federal Reserve's
efforts to resuscitate it by helping to push mortgage rates to extraordinary lows: 3.62% for a 30-year loan, according to Freddie Mac's
latest survey. Single-family housing starts, though up, remain 60%
below the 2002 pre-bubble pace. Americans' equity in homes is $2
trillion, or 25%, less than it was in 2002 and half what it was at the
peak. More than one in every four mortgage borrowers still has a loan
bigger than the value of the house, though rising home prices are
reducing that fraction slowly.
Still, the upturn in housing is a milestone, a particularly welcome
one amid a distressing dearth of jobs. For some time, housing has been
one of the biggest causes of economic weakness. It has
now—barely—moved to the plus side. "A little tail wind is a lot better
than a headwind," says economist Chip Case, the "Case" in Case-Shiller.
From here on, housing is unlikely to
drag the U.S. economy down further. It will instead reflect the strength
or weakness of the overall economy: The more jobs, the more confident
Americans are about keeping their jobs, the more they are willing to buy houses. "Manufacturing had led growth and construction had lagged,"
JPMorgan Chase economists said last week."Now the roles are reversed:
Manufacturing growth has slowed as private construction comes to life."
Plenty could go wrong. The biggest threat is a large shadow inventory
of unsold homes, homes which owners won't put on the market because
they are underwater, homes that will be foreclosed eventually and homes
owned by lenders. They have been trickling onto the market, slowed in
part by government efforts to delay foreclosures; a flood could reverse
the recent rise in prices. Or the still-dysfunctional mortgage market
could get worse. Or overly zealous regulators or a post-election change
in government policy could unsettle mortgage lenders or home buyers.
But the housing bust is over.
Write to David Wessel at capital@wsj.com
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