Good News from the Construction Industry — But Will Housing Take Off?

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A construction worker installs a window in a new home at the Arbor Rose housing development on July 18, 2012 in San Mateo, Calif. The Commerce Department reported that housing starts surged 6.9% in June, the highest increase since October 2008.

While Ben Bernanke spent the past couple days on Capitol Hill delivering some dour predictions for U.S. economy, the one sector in America actually pulling its weight these days — housing — had a pretty good week.

Yesterday, the Commerce Department reported that housing starts were at a seasonally adjusted level of 760,000 — a four-year high, 6.9% higher than last month, and 16.8% higher than the year before. New building permits dropped from the month previous, but were still nearly 20% higher than they were last year.

This positive news echoed Tuesday’s confidence survey from the National Association of Home Builders, which rose six points to 35 for July.  While it takes a reading over 50 to indicate healthy market conditions, the gain was the largest the survey has seen in ten years and the measure put builder confidence at its highest point since March of 2007 — just months after the housing bubble reached its peak.

(PHOTOS: ‘No Place Like Home: Foreclosures in America’)

These two pieces of news reinforce the narrative that the housing market is finally recovering after six long years of falling prices and tepid demand. It appears that prices have finally hit levels that represent the true value of the underlying properties, and this coupled with historically low mortgage rates has motivated capable investors to enter the market once again.

After the good news this week, The Atlantic’s Matthew O’Brien wrote, “Let’s call it a housing recovery.” Indeed, even the Federal Reserve Chairman himself, Ben Bernanke, pointed to housing as the one demonstrably vital area in an otherwise anemic economy. In his testimony to Congress this week he said:

“We have seen modest signs of improvement in housing. In part because of historically low mortgage rates, both new and existing home sales have been gradually trending upward since last summer, and some measures of house prices have turned up in recent months. Construction has increased, especially in the multifamily sector.”

(MORE: Can the Economy Get Healthy Without a Housing Recovery?)

But it’s not all sunshine and rainbows for the housing market. Yes, the free fall has stopped, but much of this good news only appears good because of the desperate lows the sector is rebounding from. In addition, there are still a large number of foreclosed homes that banks are reportedly keeping off the market in order to prop up prices. According to mortgage banker Julian Hebron, “when foreclosure inventory is artificially lowered by banks pausing on foreclosures, home prices look higher because fewer distressed sales put less of a drag on pricing.”

In addition, though the broader housing market is doing much better than during the immediate post-bubble collapse years, there are plenty of areas of the country where home prices are still falling. According to a report issued this week from the New York Fed, roughly half of the counties in America are saddled with still-declining prices. The report also showed that housing transaction volumes are still far below normal — the Commerce Department announced today that sales of previously owned homes unexpectedly dropped 5.4% in June — and that the percentage of sales that are distressed (either foreclosure sales, short sales, or deeds in-lieu) are far higher than what would imply a healthy market.

And of course, a general downturn in the economy spurred on by a financial crisis in Europe or by a slowdown in emerging-market economies would surely put a damper on the nascent housing recovery. In short, what we have on our hands is a convalescing but still frail housing market. Yes, the fever has broken — but  it’s not time for the patient to get up and start walking around just yet.

MORE: Has the Housing Market Finally Hit Bottom?

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economicmythsandlies
economicmythsandlies

People do realize that contractors building more houses has nothing at all to do with the demand for those houses right? I could go out and make one million typewriters and start boasting that the market for typewriters is coming back. Everyone would look at me like I was an idiot. The housing market is about supply and demand. Not supply and the suppliers overly optimistic expectations of where things are going. Do people remember how we got into this in the first place? The industry overestimated how many houses we needed and kept building more. The supply still vastly exceeds demand so why not sell what's on the market now before we start building more of the darn things?

Firozali A.Mulla
Firozali A.Mulla

Recession and more to come We have no good honest leaders and we want to drive all crazy by the Barclay story, Iran has nuke, let us go to Syria as if this our dad's birth place, UK, USA has unemployment figures but we are told life is great, we use bazookas against the bottles and the Middle East has never come down on the safe landing. This issue goes on Old Koffee goes to Syria and What we want

to do is get in everyone's shoe, disturb the peace, go broke then complain.

Read on The U.N. Security Council put off a scheduled vote on a Syria

resolution until Thursday and U.S. President Barack Obama telephoned President Vladimir Putin of Russia, Assad's main ally, to try to persuade Moscow to drop support for him. "The message to (Russia's) President Putin ... and the message to all those on the U.N. Security Council, it is time for the U.N. Security Council to pass clear and tough messages about sanctions, I believe under Chapter 7 of the U.N., and to be unambiguous in this."Al-Assad's.We want to travel?  I thank you Firozali A.Mulla DBA

Alec Sevins
Alec Sevins

Great, destroy more open space, create more traffic, enable more crowding, and call it "good news."

Taking the construction industry off its pedestal of importance would be much wiser than assuming overpopulation is sustainable.

With so many finite resources declining (like the cheap oil that's enabled so much of this growth) the economy should gear for downsizing and stop raising the goalpost.

Amanda Brooks
Amanda Brooks

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DeborahSmythe
DeborahSmythe

Here is an article that shows how massive job losses have been for Americans working in the construction sector when compared to those working at all levels of government:

http://viableopposition.blogsp...

The number of American construction workers has declined by 2.21 million since the beginning of the Great Recession.