Housing Needs a One Handed Economist

Harry Truman in a fit of exasperation over the advice he was getting from his economic adviser said that what he really needed was a one-handed economist. This stems from a tendency of economic analysis to offer alternatives simultaneously, creating an “on the one hand, this and on the other hand, that” outlook on a given economic situation. The current housing market appears to suffer from this predicament. Data may look extremely good but on the other hand there are different ways of looking at it. Each interpretation contains consequences that some people like and others dislike.

Current Housing Market

There’s some very good news coming out about American housing. The National Association of Realtors noted that homes are starting to sell faster, and the median time for a home listed has decreased from 98 days in July 2011 to 69 days in July 2012. The data also suggests that no less than one third of the homes purchased in July 2012 were on the market for less than 30 days. This means that people are comfortable enough to take the risk needed to purchase a home. Such a development is causing the Association to estimate that prices will rise as much as 5% for the remainder of 2012. Other data sources paint a very bright picture as well. Housing starts have gone up for three consecutive months and building permits are seeing the highest annual rates since September 2008. These all point to very serious signs of the housing market decline finally bottoming out and the beginning of a very well sustained recovery for housing with consequent improvements for the American economy as a whole.

The same report from the National Association of Realtors also notes that 20% of the homes purchased in July 2012 were on the market for at least six months. Prices may be rising because the inventory is less than the demand. Earlier future estimates notwithstanding, CoreLogic has reported that housing prices rose 3.8% in the time period of July 2011 to July 2012–still way below price levels registered in earlier years. The good monthly figures are also arriving at a time of year when the housing industry is ordinarily delivering its best data. The fall and winter months could cause a seasonal slowdown, which dampens buyer moods. Foreclosure figures have not gone down far enough to allow substantial price increases.

There is no doubt that the best way to improve housing is to have strong employment figures. This type of data means that there are people whose wages enable them to take out necessary mortgage loans. Unfortunately, the American economy has experienced over 40 months of unemployment at 8% or higher and the labor force continues to shrink. Most experts are saying that government will have to continue to have a significant presence in the form of FHA loans and assistance to keep the housing market from tumbling back. While the news right now is still good, housing is still faced with a significant number of challenges. It is safe to say that housing as a whole still walks on wobbly legs. Should the financial cliff crisis become real at the end of this year, the effect on the housing industry will probably be even more devastating than what happened between 2007 – 2009. Yes, there is reason to be optimistic about the future but this enthusiasm has to be guarded. It can all come crashing down way too quickly and far too suddenly.

Perhaps the most coherent message coming out of all of the data is that is the housing market is beginning to recover, but that it will not happen overnight and a robust housing industry may take months if not years to finally materialize. The slow recovery is understandable given the serious drop that occurred in the last few years. The consumer public should continue to watch the developments in the housing industry to attempt to ascertain if the housing market is improving dramatically just in small steps. Consumer should also keep in mind while reviewing the figures that just as there is no free lunch, there really are no one-handed economists much to the chagrin of Harry Truman.

Photo Credits:  Housing | James Thompson

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