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Summer housing recovery still expected despite small declines in confidence, home prices
Prices rise in 4 of 10 largest metro areas
Jim Haughey, Chief Economist, Reed Construction Data
June 30, 2009
HousingZone
Today's reports that consumer confidence dipped 5.3 points in June to 49.3 and the Case-Shiller 20-city home price index dropped only 0.6 percent in April have offsetting effects on the timing and strength of the housing recovery still expected this summer. Although the home price index is still declining in most major housing markets, home prices have stabilized or begun to improve in a few of the larger and many smaller markets. The confidence dip is a blunt reminder that buying confidence remains at a recession level until well past then end of the recession.Home prices rose in April in four of the 10 largest metro areas: Boston (+0.4 percent), San Francisco (+0.6 percent), Washington (+0.8 percent) and Denver (+1.5 percent). Boston had a relatively mild housing recession; home price declines began earlier and hence are ending earlier. San Francisco had an average-plus housing recession, but it’s recovering quickly with a California subsidy to home buyers; the return of some speculative buyers; and improvements in mortgage rates and credit access for its very expensive homes. The Washington, D.C., housing market is being boosted by a generous federal government wage increase and aggressive hiring for new regulatory jobs. There is no sign yet of an end to home price declines in Arizona, Nevada, Florida and the industrial Midwest.
Consumer confidence is being severely stressed by the long, deep recession. The labor market weakened further over the last month. Pay cuts are becoming more common. Layoffs have reached public and service jobs that are not affected in a milder recession. The price of gasoline went up as much as $0.25 between the two survey periods although it fell $0.05 since the latest survey. Consumers are also concerned about higher taxes. Many states and cities have or are about to raise taxes and pending legislation in Washington threatens a huge federal tax increase.
Reed Construction Data still expects a gradual upturn in the statistics measuring the national housing market this summer. This will be driven by two things: federal subsidies to home buying already in place but just now becoming significant and by a growing share of prospective buyers and investors who believe that home prices have bottomed in some market and are near the bottom in other markets.
The initial housing upturn will take place while the national Case-Shiller home price index is still dropping and the more comprehensive FHFA index is stable but not yet clearly rising. The housing recovery will begin while the Consumer Confidence Index remains in the deep recession zone but well above the cyclical low point earlier this year.
Recall that the housing recession began in early 2006, market by market, more than a year and a half before growth slowed to the 0-1 percent range in the overall economy. The recovery will be similar. It will be market by market. It will start first in markets where home prices have stopped dropping with little threat of further drops from bloated inventories of homes for sale or imminent foreclosures. Generally, these are the midsize markets in the middle of the country where home prices have been more stable in the last five years and where there have been no outsize job losses from collapsing local industries.
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© 2009, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.
