THE SECOND COMING
For a brief moment last fall, it looked as though the American housing sector might not be the persistent economic drag economists had feared. Home prices and sales leveled off and began climbing. Construction did the same. In the third and fourth quarter of last year, residential investment was a minor but positive contributor to American output growth. Buoyed by a generous homebuyer tax credit and mortgage rates held down by Federal Reserve purchases, housing markets seem poised for stability, if not a new boom in activity.
But the good times haven’t lasted. Construction and builder confidence have weakened once again. The latest data on existing home sales show a spike in activity and the best April performance since 2006. But this was almost certainly due to the looming end of the federal tax credit. Sales also rose and spiked before and immediately after the previous deadline, last fall, only to decline again through the winter. More worrying still, the previous spike in sales coincided with a decline in housing inventory. This time, inventories have risen dramatically. Even as the end of government incentive programmes lead buyers to exit the market, the number of homes for sale will have grown significantly states the Economist.
The shadow inventory of homes with delinquent mortgages yet to move through the foreclosure process would take 47 months to clear at the current sales rate in the market, according to a newly-published housing finance report from Morgan Stanley.
The report which takes a broad overview of the market, shows the trend for originations flattening, as credit availability remains “negative” and the desire of Americans to form households is “neutral” states Housing Wire.
“Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds.”
“At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010.”
“Given the sheer number of potential homes for sale and the weak pace at which demand is trending, the bottom of the housing market may last another 3-4 years, during which annual appreciation may reach only as high as inflation or income growth, meaning real asset values will remain unchanged or lower throughout this period,” according to the Morgan Stanley report.