From the NYT:
A funny thing is happening to the United States housing market. It is getting better at an accelerating rate.
And therein could lie hope for a surprisingly strong economy this year.
It has been a long time, as the economy worked off the excesses of the boom and cleared out the inventory of homes that should never have been built or were “sold” to people who could not hope to afford the payments. But now the inventory of houses for sale — both new and used — is as low as it has been in decades. Home prices are rising in most markets. Sales have picked up, though they are still low by historical standards.
“We had 48 months of depression in the housing industry,” said Karl E. Case, an emeritus professor of economics at Wellesley College and the co-developer of the Standard & Poor’s/Case-Shiller house price index. “Housing has brought us out of every recession in the past, and it was not available.”
But now, he said in an interview, “there is no question that we have turned what seemed to be a headwind into a tail wind.”
The National Association of Realtors, which reports each month on sales of existing, or used, homes, tries to calculate how many sales are distressed and how much that distress lowers the prices received. Lately, the proportion of distressed sales has been declining slowly and so has the discount. In December, 12 percent of sales were said to be of foreclosed homes, and an equal number were short sales, in which the home is sold for less than the amount owed on the mortgage.
There is reason to hope that those figures will continue to decline. Moody’s reports that the “shadow inventory” of homes with foreclosures pending and homes already owned by banks but not on the market is declining. It voices hope that banks “are finally putting behind them the operational and regulatory issues that plagued them in the past and are taking the steps necessary to address their backlogged foreclosure inventory.”
At some point, the declining proportion of distress sales could well mean that house price indexes will begin to rise faster than the underlying market might really justify, as those sales stop holding down the averages.
If that came as the economy began to strengthen enough that the Federal Reserve decided to let interest rates start to creep up, could that create a rush to buy among those who fear rising prices and mortgage interest rates?
Perhaps, but nothing like during the old days. People do know now that prices can fall, demographics will limit the number of new families that need housing, and banks are far less willing to make loans than they were. (That is true even though nearly all mortgages are sold to Fannie Mae and Freddie Mac. Banks fear they will have to repurchase any bad loans they sell, and seem to be erring on the side of caution.)
None of this is meant to suggest that the housing market is in good shape. But it is improving.
During the years running up to the collapse of the housing bubble, Professor Case was among those warning that prices had risen to unsupportable highs. But now he has a different view.
When I called him this week, he apologized for having to end the interview because of a prior appointment. “I’m going to look at a property that I may buy as an investment,” he said.