Is it time to freak out about U.S. housing?

Severe weather and last year’s rise in mortgage rates have slowed the housing market

New York /
Apr.April 26, 2014 03:00 PM

 One of the biggest stories in the economy right now is how meh the housing market is. At least by some measures.

Here for example is housing starts, which had been rising nicely (seemingly headed towards pre-crisis levels) but which has run into a buzzsaw lately.

The downturn has been even more pronounced in existing home sales.

These charts aren’t pretty, but with housing, the story is always more complicated than the top-line numbers suggest.

For one thing, there are lots of different ways to measure housing (price, inventory, new home sales, existing home sales, etc.) But also, even within a series like existing home sales, the intent behind said home sales matters.

As Bill McBride at Calculated Risk pointed out in a must-read post this week, the biggest part of the existing home sales decline is due to a drop in distressed housing sales (fewer and fewer firesales as a result of stretched homeowners) while the percentage of sales that are conventional is on the rise. So this is a good sign.

And even new home sales/housing starts (which are off to a sluggish start this year) should be up nicely for the year as a whole.

Meanwhile, housing should benefit from two tailwinds.

From Capital Economics:

The apparent crumbling in the housing recovery has, at least temporarily, removed a valuable support to GDP growth. But the wider economic recovery will carry on regardless and it may not be long before residential investment once again starts adding to GDP growth.

The fading of the housing recovery is mainly due to two factors; the effects of the severe weather and last year’s rise in mortgage rates. With the weather returning to normal and mortgage rates having fallen back a bit, the housing recovery will come back to life before long.

This may be optimistic, but the bigger point is this: Numbers remain generally up (the numbers that really matter, anyway), and the rest of the year should be fine, especially as the weather improves, and the impact of recent lower rates trickles through.


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