After three years of bad news, all of the housing market news was positive last month. But probably not positive enough that a housing market recovery has begun. That is still many months away. Still, recent developments suggest that there is little decline left in the housing recession even through no significant pick up in residential construction occurs until after mid-year.

Housing permits increased 3% in February, sales rose 5%, starts jumped 22% and the “for sale” inventory dropped 3%. Just as important, recent declines were revised down. This trend in revisions is often a signal that the worst is behind us. 30-Year fixed mortgage rates fell 30 basis points over the last four weeks. The home affordability index improved to a new record high level. The long decline in home sales prices eased. The materials cost index for residential construction dropped a further 0.4%. And the Federal Reserve Board initiated several new programs to spur housing. One will shore up banks by buying their distressed mortgage bonds with a taxpayer financed subsidy that will probably yield an acceptable price to the banks. Another will pour several hundred billion dollars into Fannie Mae and Freddie Mac so that will have the capital to forgive more mortgage payments and finance a rise in purchase mortgages.

Depressed confidence is still the major restraint on housing demand. Preliminary March data suggest that confidence did not worsen further and may have improved marginally. No significant rise in confidence is expected while weekly job layoffs remain over 500,000. The count has been kin the 650,000 range for several weeks.

The housing recession is now entering the fourth year. The survivors are running out of reserves or credit to wait for a market recovery. Expect a surge in builders ceasing operations in 2009 even as the market stabilizes and then begins to rise later in the year.

Housing Market Monitor — April 2009

Abbreviations: NAR = National Association of Realtors; NAHB = National Association of Home Builders;
FHFA = Federal Housing Finance Administration
Table: Reed Construction Data and Reed Construction Data – CanaData.