New home starts and increased renovation activity typically provides the biggest boost to job creation after a recession. The almost non-existent housing recovery (chart 1) is atypical for this stage of an economic recovery. This has resulted in a lower level of job creation and a subpar economic recovery.
Chart 1: New Home Starts
There are signs that after 4 years of historically low levels of housing activity, we may be nearing a bottom. Recent delinquency reports (households delinquent on their mortgage payments) have fallen to their lowest levels since 2008, potentially signalling that the housing market is stabilizing. The rate of home price declines is showing signs of moderation, providing another hopeful sign. During January, half of the cities surveyed showed flat or sequential prices increases on a seasonally adjusted basis. Sales of previously owned homes (chart 2) rose to their highest levels in almost two years in January. This activity was sustained through February.
Chart 2: Existing Home Sales
Homes listed for sale (Grey line in Chart 3) is also declining as is the inventory of unsold homes (blue line in Chart 3) which fell to a 5 year low at around six months supply of existing homes for sale. A reading of 6 months or less is generally considered an indication of a healthy housing market where there is a balance between supply and demand.
Chart 3: Inventory of Existing US Homes
It is increasingly likely that a bottom for both home price and housing activity will be achieved sometime in 2012. This does not necessarily mean that home prices will materially appreciate for a number of years or provide near term relief for the millions of home owners who owe more on their mortgage than their house is worth. With the enormous backlog of bank foreclosures (2 million loans), there is still an ample supply of homes waiting to come to market that will limit a rebound in prices this year. Even though we are discussing national trends, real estate remains a local market. While home prices will bottom nationally sometime in 2012, prices will vary locally with the bottom occurring at different times in different markets.
