The Misleading US Housing "Recovery"

Last Wednesday's Wall Street Journal carried a prominent lead article trumpeting the recent news concerning increases in housing starts and home prices "across U.S." Home prices were described as having "first gain in three years."

Yet, details in the long article were somewhat contradictory to this headline's implications, if not its limited scope.

No less an authority than Yale housing economist Robert Shiller was cited as saying,

"The change in momentum here is very significant."

Yet, the article also noted of Shiller,

"He said he expects home prices to remain near current levels for the next five years."

Elsewhere in the Journal piece, the ability of housing prices to rise was credited to banks delaying the remarketing of foreclosed homes. This deliberate constriction of supply tends to, of course, firm up prices.

Ivy Zelman, CEO of Zelman & Associates, a housing-research concern, was quoted as saying,

"We think (the sales index) will look like a "W," where prices go up until the foreclosures at the higher end translate into another leg lower."

The article also noted that larger down-payments are being required on buyers trading up to larger, more expensive houses, while jumbo mortgages typically carry higher rates. Both these factors will tend to retard housing sales.

These comments put an entirely different spin on the recent, small and brief upward blip in housing prices and sales.

Seen from 2005, both measures are still very low. And now we learn this positive news might be so only because an undetermined stock of foreclosed homes has yet to reach the market, thus further depressing housing prices, and, probably, new home starts.

Hardly what you'd use to underpin your hopes for a widespread US economic recovery, is it?