Housing data provide bright spots, but economists’ outlook is still gloomy

November 24, 2011

The past week has brought encouraging reports on the housing industry, glimmers of hope that the market might finally be turning in the right direction.

But economists and other housing experts have a message that could dampen any optimism: Real recovery remains far from reality five years after boom began turning to bust.

“There has been some improvement, but the numbers are still abysmal,” said Patrick Newport, U.S. economist at IHS Global Insight. “The market is doing really badly; it’s just doing better than it was early in the year.”

Among the recent bright spots, data released this week showed that the number of building permits issued in October rose 10.9 percent over the previous month, with construction of new multi-family units improving notably. Existing-home sales also rose slightly, by 1.4 percent. In addition, the number of homeowners falling behind on their mortgage payments has slowed, though delinquencies remain at troubling levels.

“There are signs of life in parts of the market,” said Michelle Meyer, senior U.S. economist at Bank of America Merrill Lynch. But, she added, “I think the housing market is still quite distressed.”

She noted that home prices, which have fallen nearly a third since early 2006, are facing an additional estimated decline of 8 percent through the first quarter of 2013. Also, she said, the millions of foreclosures — those still working their way through the legal system or foreclosed homes that are vacant and awaiting sale — have slowed any potential recovery.

“The biggest hurdle for the housing market is clearing the backlog of distressed properties,” Meyer said.

That seems unlikely to happen soon in many parts of the country, given high unemployment, stricter lending standards and the stream of new foreclosures heading into the pipeline.

A report issued this month by the Center for Responsible Lending, a consumer advocacy group, found that the foreclosure crisis is not even halfway over and that “there are no signs that the flood of home losses in America will recede anytime soon.”

The study found that among homeowners who received loans between 2004 and 2008, nearly 6.4 percent had lost their homes to foreclosure by this year. An additional 8.3 percent, or about 3.6 million households, remain at “immediate, serious risk” of a similar fate, the report stated.

Demand has remained lackluster despite falling prices and low interest rates, according to research by Fiserv Case-Shiller, which tracks home trends in more than 380 U.S. markets.

“Housing demand remains depressed with existing home sales back to 1998 levels,” David Stiff, a Fiserv chief economist, said in a statement that details recent findings. “Even households with access to mortgage credit are hesitant to buy homes while job growth is weak and consumer confidence is low.”

With the housing market stuck in neutral, government officials have continued their long-running efforts to strengthen the housing sector and put it on a more solid footing.

In September, the Federal Reserve announced it would resume purchasing mortgage investments, aiming to flood the mortgage markets with money and thus reduce interest rates on home loans. Last month, the Obama administration teamed up with federal regulators on a new plan aimed at helping “underwater” homeowners — those who owe more on their loans than their properties are worth — to refinance at today’s low rates if they have government-backed loans. Last week, Congress approved a bill that would increase the size of mortgages insured by the Federal Housing Administration.

Those measures, combined with existing government efforts, will benefit certain groups of homeowners but are unlikely to give the housing market the significant jolt it needs to fully recover.

Newport, the IHS economist, expects that housing prices might finally hit bottom in 2012 but that the market will not truly pick up steam until at least 2013.

“We won’t really be back to normal until 2014 or 2015,” he said.

That slow recovery foreshadows a potentially long slog for the larger economy, which has struggled to rebound and is inextricably tied to the nation’s real estate woes. It is a reality that Federal Reserve Chairman Ben S. Bernanke has acknowledged repeatedly.

“The housing sector’s a very important sector,” he said in a new conference this month. “The problems in that sector are clearly a big reason why our economy is not recovering more quickly.”

Brady Dennis is a national reporter for The Washington Post, focusing on food and drug issues.
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