Tweet
From James C. Cooper writing in the October 29th Business Outlook column in BusinessWeek:
The broad improvement in the housing indicators in recent months leaves no doubt that the long-awaited housing recovery is finally under way. In fact, homebuilding added solidly to third-quarter economic growth, its first positive contribution in 3 1/2 years. The question now is: Will it last?
Unlike past housing rebounds, this one has received an extraordinary amount of policy support. Tax credits, programs to aid refinancing and loan modifications, and direct Federal Reserve involvement in the secondary mortgage market have all played roles in reversing the mother of all housing slumps. As this assistance ebbs, the recovery will surely feel the loss, but the upturn is built on a solid foundation of improving economic fundamentals that will keep the rebound going.
Policy alone cannot explain the 24% gain in existing home sales since January, nor the 22% increase in new-home purchases, the 40% rise in single-family housing starts, and the recent upturn in home prices. The primary driver is historically high affordability. Fixed 30-year mortgage rates are at 5%, a multi-decade low, and prices have plunged a total of 30% since May 2006, based on the Standard & Poor's Case-Shiller Home Price Index. By that price gauge, homes are well undervalued relative to both rents and aftertax income.
Golly. I thought that monetizing a whole big passel of mortgage-backed securities and taking over Fannie Mae had some impact on mortgage interest rates. But I guess those are fundamentals.
The broad improvement in the housing indicators in recent months leaves no doubt that the long-awaited housing recovery is finally under way. In fact, homebuilding added solidly to third-quarter economic growth, its first positive contribution in 3 1/2 years. The question now is: Will it last?
Unlike past housing rebounds, this one has received an extraordinary amount of policy support. Tax credits, programs to aid refinancing and loan modifications, and direct Federal Reserve involvement in the secondary mortgage market have all played roles in reversing the mother of all housing slumps. As this assistance ebbs, the recovery will surely feel the loss, but the upturn is built on a solid foundation of improving economic fundamentals that will keep the rebound going.
Policy alone cannot explain the 24% gain in existing home sales since January, nor the 22% increase in new-home purchases, the 40% rise in single-family housing starts, and the recent upturn in home prices. The primary driver is historically high affordability. Fixed 30-year mortgage rates are at 5%, a multi-decade low, and prices have plunged a total of 30% since May 2006, based on the Standard & Poor's Case-Shiller Home Price Index. By that price gauge, homes are well undervalued relative to both rents and aftertax income.
Golly. I thought that monetizing a whole big passel of mortgage-backed securities and taking over Fannie Mae had some impact on mortgage interest rates. But I guess those are fundamentals.
Comment