Homing In

Is housing about to come out of its funk?

The current economic downturn is unique. It was based on a boom and bust in housing, which is both a financial asset and a place to live. It’s the largest single purchase most people ever make, and it’s an essential consumer good. It also is a key component of the US financial system, so it’s no wonder that a housing bust caused a financial panic.

Housing is also uniquely important in the economy. It’s a labor-intensive good, and manufacture (for the most part) can’t be outsourced. So a revival of the housing market and attendant home construction industry would generate a lot of jobs.

Housing stats are funny, though. It’s only recently that we started to get good data on home prices and those are reported with a lag. But home prices follow activity, and the activity in the housing market is starting to pick up. Building permits are up about 20% over last year; housing starts are up 25% from a year ago; and new home sales have been stable (albeit at a low level) for about a year and a half.

Home prices also depend on affordability. After all, it’s unlikely that prices will stabilize if the average household still can’t afford a home. But the combination of lower prices, low mortgage rates, and an improving job market has pushed housing affordability to record levels. This also bodes well for prices.

I’m not saying we’re off to the races; progress is likely to be “three-steps-forward-two-steps-back.” But for the first time in five years, it looks like housing is becoming a source of strength for the economy.

By | 2017-07-17T12:34:57+00:00 February 22nd, 2012|Economics, Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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