For the third month in a row, single family housing starts provided a glimmer of hope so some pundits that the worst is behind us in the troubled housing sector. But the numbers are still not good enough to prove to me convincingly that housing has turned around.
First the good news: privately owned housing starts in May came in at 532,000, a 17.2 percent increase above the April figures, according to the Commerce Department. The single-family housing start number was 401,000, up 7.5 percent from the April level, its third monthly increase.
There was another positive number in the Commerce Department statistics: building permits in May were up four percent from the April level and single family home permits climbed by 7.9 percent. These numbers are important because they are a measure of future construction activity.
Joe Robson, chairman of the National Association of Home Builders, said the outlook had improved “somewhat” in recent months thanks to the federal government’s $8,000 first-time home buyer tax credit and the fact that large-scale foreclosures have made homes more affordable. “Looking forward, home builders are facing a few headwinds, including expiration of the tax credit at the end of November, a recent upturn in interest rates and especially the continuing lack of credit for housing production loans.”
As if to underline Robson’s cautious outlook, the NAHB said that its index of builder perceptions about home sales in the next six months had actually declined one point in June to 15.
Here’s why everyone is still very cautious: home prices continue to fall and mortgages, while still near historic lows, have become more expensive to obtain in the last few weeks.
The Mortgage Bankers Association said its Market Composite Index, which measures mortgage application volume, had declined 15.8 percent in the week ending June 12. Refinancings declined 23.3 percent the same week. That happened even though the average rate for a 30-year fixed-rate mortgage declined marginally from 5.57 percent to 5.50 percent, but still up from May’s 4.81 percent.
On house prices, Robert Shiller, a Yale University economist who created a well respected home price index, says there is currently much less demand relative to supply and “prices may continue to fall, or stagnate, in 2010 or 2011.”
Shiller said that even if there is a quick end to the current recession, “the housing market’s poor performance may linger.” He noted that after the last home price boom, which ended at the time of the 1990-1991 recession, home prices didn’t start moving upward until 1997.
Even more optimistic projections indicate that house prices may remain stagnant for some years. The UCLA Anderson Forecast predicted that new home prices will increase 0.9 percent in 2010. But it also warns: “Because house price bear markets tend to have ‘long tails,’ do not expect any swift rise in prices over the next several years.” Instead, there is likely to be a new round of foreclosures as so-called Alt-A mortgages — variable rate loans that are one step up in credit risk from subprime loans — reset their interest rates in the next couple of years.
Nouriel Roubini , an economics professor at New York University’s Stern School of Business, has been one of the most gloomy prognosticators about the recession. His view about housing is no different. “The gap between supply and demand is huge,” he told Reuters television this week. “You could stop housing starts … today and it would take a year to clear the inventory of existing homes. I expect home prices are going to fall for another year and a half by another 15 to 20 percent.”
With experts like Shiller and Roubini predicting stagnating house prices, it’s hard to get excited about housing starts, which after all will add to the existing supply of unsold homes and thus contribute to driving prices down further.
