Analysis: Housing begins long, slow rebound

Analysis

updated 2:42 p.m. ET Aug. 1, 2009

It was — note the past tense — the worst housing recession anyone but survivors of the Great Depression can remember.

From the frenzied peak of the real estate boom in 2005-2006 to the recession's trough earlier this year, home resales fell 38 percent and sales of new homes tumbled 76 percent. Construction of homes and apartments skidded 79 percent. And for the first time in more than four decades of record keeping, home prices posted consecutive annual declines.

A staggering $4 trillion in home equity was wiped out, and millions of Americans lost their homes through foreclosure.

Now take a deep breath and exhale. The worst is over.

Freefall is over
By every measure, except foreclosures, the housing market has stabilized and many areas are recovering, according to a spate of data released in the past two weeks. Nationwide, home resales in June are up 9 percent from January, on a seasonally adjusted basis. Sales of new homes have climbed 17 percent during the same period. And construction, while still anemic, has risen almost 20 percent since the beginning of the year.

Even home prices, down one third from the top, edged up in May, the first monthly increase since June 2006.

"The freefall is over," says Dean Baker of the Center for Economic and Policy Research.

The problem is that, Baker, like many economists, expects the housing market will "be bouncing around the bottom" for the second half of the year.

Real threats
There are also real threats that could poison this budding recovery. The unemployment rate, which is 9.5 percent, is expected to surpass 10 percent, leaving even more homeowners unable to pay their mortgages. Mortgage rates could rise, making homeownership less affordable. And the federal tax credit for first-time homebuyers, which as lured many into the market, is set to expire on Nov. 30.

"As long as jobs are being lost, regardless of all the federal programs out there to help the borrowers, you're still going to have problems in the housing market," says Steve Cumbie, executive director of the Center for Real Estate Development at the University of North Carolina's Kenan-Flagler Business School.

True, but when you've got bidding wars for foreclosures in places like Las Vegas, Phoenix and Los Angeles, it's time to call the bottom.

Northeast
Nobody knows the power of a dollar like New Yorkers.

After home on Long Island sat on the market for four months recently, the sellers' real estate agent told them to drop the price from the mid-$600s to $599,000. The house sold the next weekend.

In Merrick, about 30 miles east of New York City, homes are starting to sell "as long as they're priced right," the agent said.

In January, with the ground and financial markets still frozen, few would have believed that the worst of the housing crisis in the Northeast would turn around within six months.

But the evidence is clear: home resales in the region in June hit a seasonally adjusted pace of 820,000, up 28 percent from the beginning of the year. Sales of new homes were also up slightly and construction in the region more than doubled.

Even the median sales price of $249,400 in June was up 10 percent from January and was off just 6 percent from year-ago levels, according to the National Association of Realtors.

"We certainly had our share of problems, but overall the severity of what happened here was far less" than what happened elsewhere, says Michael Lynch, an economist with IHS Global Insight.

Pittsburgh has the region's strongest home market in terms of sales and prices because the city saw less of a housing bubble and the area has 7.7 percent unemployment rate that is below the national rate.

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