|Weakening Economy Expected to Slow, Not Derail, Housing Recovery|
Exceedingly weak for the past year, the housing recovery
seems to be gaining a little momentum.
Reflecting an improvement in builder sentiment on
single-family homes, October’s NAHB/Wells Fargo Housing Market Index (HMI) rose
four points to 18. While still low, this was the HMI’s highest level since the home
buyer tax credit expired in May 2010.
While still remaining close to historic lows, new-home sales
rose 5.7% in September, a hint of likely further improvement in 2012.
September’s housing starts were also encouraging, jumping 15%
to their highest level since April 2010. The increase came mostly from the volatile
multifamily sector, so it may not be sustainable. And multifamily starts remain
far below the levels that will be needed to meet the rising demand for rental
housing, which can be seen in the steady rise in nominal rents in the consumer
price index in recent months.
House prices continued to recover modestly in the
Case-Shiller composite indexes for August, although at a more moderate pace than in the
preceding four months, unlike prices on the index from the Federal Housing
Finance Agency (FHFA), which stumbled slightly after a four-month climb.
Existing home sales experienced some slippage in September
following a solid gain in August, maintaining the relative flat trend that has
persisted since the beginning of 2011.
Economic conditions are expected to remain weak, slowing the
housing recovery but not derailing it. At its Sept. 20-21 meeting, the Federal
Open Market Committee (FOMC) projected slower growth for the second half of
2011 and into 2012, based on weakening labor market conditions and consumer and
business sentiment. The Oct. 19 Beige Book from the Federal Reserve depicted a
slow and uneven economic recovery, with most bank districts reporting either
weaker or less certain business outlooks.
On the housing policy front, leaders in Washington appear to
be turning some attention to the depressed state of the nation’s housing market,
which has gone largely unaddressed.
The FHFA recently announced changes to HARP (Housing
Affordability Refinance Program) to enable more underwater home owners to
refinance their mortgages at today’s historically low interest rates.
The Federal Reserve is also expanding its programs, deciding
to reinvest principle payments from agency debt and mortgage-backed securities
back into mortgage-backed securities rather than longer term Treasuries.
Supporting even stronger measures, Fed Governor Daniel
Tarullo recently advocated further large-scale purchases of mortgage-backed
securities, but the FOMC remains divided on this issue.