Housing Double Dip: Is it Over?

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The supply of new homes dropped 22% in the past year. (Lucy Nicholson / Reuters)

One of the oddities of the rebound from the recent recession is how much housing has lagged the rest of the recovery, and with the economy growing so slow that is somewhat of an achievement. While the economy has continued to limp along, housing has backtracked. After rising in 2009, with the help of tax incentives, real estate prices began falling again in late 2010. But that might now be changing.

On Tuesday the latest numbers from the widely watched Case-Shiller housing index showed that home prices rose in May for the second month in a row. The two month stretch is notable because before that home prices had fallen for eight months in a row. What’s more, a report from the Census Bureau also out Tuesday showed that new homes sales were up from a year ago. Even more important, the supply of unsold new homes, one of the things that had been weighing on the housing market, had fallen to 6.3 months, which means at the market’s current pace it would take just over half a year for every available recently build house in America to find a buyer. Supply has dropped 22% in the past year and down more than half from the high of over 12 months in early 2009. So is the double dip in housing finally over?

The answer may have to do with affordability. Both housing prices and interest rates have fallen since the beginning of the recession. And the drop in housing prices has been dramatic, down nearly 30% on average nationwide. In a number of markets, the prices of a home has fallen by more than half. The result is that housing looks to be more affordable than it has been in decades. That’s what has caused a number of people to predict a rebound in housing this year, which until recently hasn’t happened. So what is holding housing back? Starting paychecks it appears.

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A new study from the Center for Housing Policy suggests that the costs of buying a house may not be as affordable as some of our traditional metrics suggest. The study looks not just at whether the average individual can afford to buy, but whether someone who has just landed a job can afford to become a homeowner, because afterall a new employer is one of the reasons people need to purchase a home. What the study found is that in the positions where most people are landing jobs, starting salaries generally do not make home ownership affordable. For instance, the average person starting in a new job as a an office clerk could only afford to buy a house in 27 of the 209 metro areas that the study looked at.

The problem is with so many people out of work, average salaries for new workers have fallen more dramatically than those of workers in general. This is particularly true for people changing professions. Second, you have the problem of downpayments. During the housing bubble, many people buying homes put down little or nothing out of their own savings. Now, most banks are requiring a 20% downpayment. In this week’s magazine, my colleague Roya Wolverson has an article that looks at how long, based on current house prices, it would take for people in different professions to save up enough for a 20% downpayment. For a child-care worker, it was 41 years – just in time to move into the old age home. Elementary school teachers and police officers are looking at 15 years of savings before they have enough for a home.

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All this means that you probably shouldn’t get too excited about today’s news. Until we fix our nation’s employment problem, housing prices, if not falling, will probably stay low for a while.

Stephen Gandel is a senior writer at TIME. Find him on Twitter at @stephengandel. You can also continue the discussion on TIME‘s Facebook page and on Twitter at @TIME.