The housing market remains stuck at the bottom of it long recession. New home permits, starts and sales are approximately flat in the last few months. The existing home market may now have also stabilized but this is still tentative. Consumer buying power and home affordability have grown strongly in the last few months entirely due the mailing of $250 stimulus checks to low and moderate income households. This temporary boost was not enough to halt net layoffs or substantially raise confidence. Home remodeling spending is likely still sinking slowly although the hard data to confirm this is not available.

The turnabout to rising housing starts is still expected this summer with the existing home market beginning to improve at the same time or a month or so later. The remodeling decline will persist into early next year, the typical delay behind the new and existing markets. The key driver of the turnaround will be fewer job losses as a result of resumed expansion in manufacturing after a long inventory reduction. This boost in income and confidence will spillover into homebuying. More taxpayer subsidies to housing and the end to the long slide in home prices in more parts of the country will also contribute.

It will be several months after a clear turnaround in housing starts before the good news reaches other market measure. Monthly residential jobsite construction spending will continue to decline. The pipeline of work in progress is unusually low. More recently started homes are smaller and have fewer features. Many homebuilders no longer have the credit access to build ahead in anticipation of a demand increase. Residential construction employment and wages are likely to decline into the fall.

Home prices will continue declining in the markets in the Southeast, Southwest and Great Lakes that are still dominated by foreclosure and foreclosure avoidance sales. The amount of materials consumed at residential job sites will begin expanding quickly as soon as housing starts are rising. But it will take a few months to clear excess inventory before the turnabout reaches materials producers. Lumber will be impacted first.

None of the market measures in the table have much insight into how the housing recovery will proceed after the initial pickup. That depends on the pace of the parallel general economic recovery. Currently, most signs suggest a sluggish economic recovery, slowed by a constraint on available credit after several years of capital destruction, fear of huge tax increases and the disruption caused by multiple major changes and proposed changes in the health, energy and financial sectors of the economy.

President Obama and the Congress always claim that their proposals will boost the size of the economic pie. But the details and their actions make it clear that they have too much interest in the size of the slices and too little interest in the size of the pie.

Housing Market Monitor — July 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.