Been Down So Long - Has Housing Finally Bottomed?

The economy may be poised for better days, but we’re still a long way from a genuine boom. Indeed, some folks remain skeptical generally and warn that the economy is more likely to contract than grow in the foreseeable future. A higher level of confidence that we’ll sidestep macro trouble is in order. But how? Job growth seems to be perking up, but it could use some help. Maybe we’ll catch a break with residential real estate in the months ahead too. Yes, real estate.

Granted, that’s a tall order, or so the last several years suggest. It’s been a long time since housing was a positive contributor to economic momentum. Meantime, predictions of recovery have come and gone for, well, years. But while it’s easy to remain gloomy about residential real estate, there has been progress, albeit primarily as a sector that’s no longer contracting. Unfortunately, it’s not necessarily growing either. But after three years of treading water in housing starts and newly issued building permits, for instance (see chart below), are we finally at the stage for something approximating an authentic expansion? Even if--a big if--we're at a turning point, any expansion is likely to be mild at best. But if you’re willing to entertain an optimist outlook, the numbers suggest that there could be some light trickling into this tunnel.

Housing starts and new building permits are inching higher. Meantime, housing inventories have fallen to 2005 levels, notes Bill McBride at Calculated Risk. The drop inspires Slate's Matthew Yglesias to think on the bright side and write: lower inventory "obviously doesn't mean that we're primed for a return to full boom levels of residential investment and construction employment, but it does mean that we should be primed for a return to something like long-term average levels of residential investment and construction employment."

Perhaps it's no surprise to find that a housing industry economist is expecting better times, but David Crowe of the National Association of Home Builders argues that 2012 will be an improvement over last year. "I'm looking at 2012 as sort of a ramping event to get a much more solid recovery in 2013," he tells AP. If so, maybe we'll see some supporting evidence in next week's scheduled updates for housing starts and building permits for January.

Housing's contribution to the economy is estimated to be as high as 18%, and so even modest growth for this sector could be just the thing that's needed to keep the expansion going.

The housing market is "improving," says Crowe, "but it is not going to be great. We are so far down we almost have to see some improvement.”

Residential property investment is poised to increase at more than twice the rate of GDP this year, predicts Bank of America Merrill Lynch, reports HousingWire. According to the analysts, even a modest revival "will help reduce the stubbornly high bucket of long-term unemployment and underpin confidence. A virtuous cycle can start to develop, but it will be gradual."

If so, we may see some clues in next week's housing reports. Hope springs eternal for this sector… again.

And for good measure, there's a new deal to help sort out the foreclosure mess. Perhaps it's no surprise that homebuilder shares have popped recently. "Anything that helps resolve the issue is bullish for homebuilder stocks," says Thomas Lawler of Lawler Economic and Housing Consulting. "It’s good for builders that are well-capitalized and don’t need to go to the bank to get a loan, and those are basically the publicly traded builders."