The housing news has sounded awfully schizophrenic recently – it’s up, it’s down, it’s a cause for concern, it’s fueling the economy recovery… what’s really going on?
Economists and journalists are paying more attention than usual to housing markets right now, because the real estate sector had been lagging behind the overall economy's recovery and its strengthening over the last year has led to hope that it will re-energize the anemic overall recovery. With all the discussion about the Federal Reserve tapering its $85 billion/month Treasury note-buying stimulus as soon as next month, analysts have been looking to news in the housing sector as a potential bellwether for whether the Fed will feel comfortable enough to ease off the stimulus throttle.
A study released today actually found that the Fed would have a more powerful impact stimulating the economy by buying mortgage-backed assets, rather than Treasury notes. The premise is that buying mortgage-backed assets would tighten the supply of them on the market, causing their value to rise. In turn, mortgage lenders would be more willing to make loans, because they will be able to sell them off for higher prices. The Fed has considered buying more mortgage-backed assets, but the minutes of their July meeting (released to the public this week) reveal that they decided against this course of action.
So how are actual home sales doing nationwide? Data released today shows that new home sales dropped sharply last month, down to an annual rate of 394,000 in July, compared June’s rate of 497,000. Supply of new homes on the market is up to 5.2 months, up from 4.3 months in June, and correspondingly new home prices fell to their lowest level since January as there was more inventory available and fewer buyers competing for it.
But wait, there’s more! Existing home sales “increased 6.5 percent to a seasonally adjusted annual rate of 5.39 million in July from a downwardly revised 5.06 million in June, and are 17.2 percent above the 4.60 million-unit pace in July 2012,” according to a National Association of Realtors report released on Wednesday.
Real estate markets, like the economy in general, is improving slowly and unevenly. Lowe’s and Home Depot, the two largest retailers for home improvement products, both reported strong growth on earnings, which is an excellent sign for housing markets. But the more important news to most of us is that homebuilders are adding on substantial jobs again, which will address the biggest weakness in the U.S. economy: the unemployment rate.
The unemployment rate remains a painfully high 7.4%, which causes countless problems for an economy still struggling to find its footing. People who are not earning money are not buying companies’ goods and services, depriving local businesses of likely customers. Tenants don’t pay their rent, landlords and homeowners don’t pay their mortgages, evictions and foreclosures ensue. Governments are simultaneously denied taxable income and must shell out for unemployment and other support benefits. And none of this takes into account the personal suffering and lasting career damage caused by long-term unemployment.
Nor is everything hunky-dory for people with jobs, either; a study released Wednesday by several former Census Bureau officials reveals that median household income in America remained a troubling 6.1% lower in June 2013 ($52,100) than it was in December 2007 ($55,500), adjusted for inflation.
In short, Americans are still feeling a lot of financial pain, and many are looking to the housing sector to buoy the economy as a whole. The news may be mixed, but housing is strengthening, and though it will take years, the gains made by the real estate sector will continue to slowly, unevenly chip away at the unemployment rate and boost economic activity as a whole.