Last decade's housing boom is still inflicting a world of pain on lenders, homeowners and the financial system. Home prices are still falling. But there are growing signs that a sector that had become a massive drag on growth is now becoming a factor that can add to growth. We've written before of the ways in which housing is important for economic growth — it uses lots of local labor and materials, and transactions generate a lot of collateral activity and taxes.
For the recovery to continue, we really need housing to get back on its feet, and by many accounts, it looks like that is happening.
"I think that maybe, finally, we are seeing a bottom in the housing market," says Joel Prakken, co-founder and senior managing director at Macroeconimics Advisors, in the accompanying video with my Daily Ticker colleagues, in response to the burning question on the minds of economists, homeowners and potential homeowners alike: Has the housing market finally bottomed? "Whether it is existing home sales or sales of new homes or any one of the three or four indices for house prices that economists track, all of these seem to have formed a bottom and [are] pointing modestly in the up direction."
Here are a few items in the news this week to suggest a housing recovery may be in the making:
Item #1. Toll Brothers (TOL), the classic bubble-era McMansion company, and the subject of a great 2005 New York Times Magazine story by Jon Gertner, on Wednesday reported that it earned a profit in the recently concluded quarter. Toll delivered 671 homes worth $374 million, up from 591 homes worth $320 million in the same quarter a year ago. The company's order backlog is up. And Toll now projects it will deliver between 2,700 and 3,200 homes in the current fiscal year, which ends in October. That compares with 2,611 for fiscal year 2011. Should the next several months come in as projected, fiscal 2012 would be the first year since 2005 in which deliveries increase. (Here's a company chart with great historical data. )
Item #2. On Wednesday, the Census Bureau reported that new home sales came in at an annual rate of 343,000 in April. That's up 3.3 percent from March, and up 9.9 percent from April 2011. In 2011, the number of new homes sold in the U.S. continued to fall — to 306,000 from 323,000 in 2010. But through the first four months of 2012, 117,000 new homes have been sold, up 14.7 percent from the first four months of 2011. April 2012 marked the seventh straight month in which new homes sold were higher than the year-before month. Yet inventory continues to fall. In April, there were 5.1 months' supply of new homes on the market, down from 6.7 months' supply a year ago.
Item #3. On Tuesday, the National Association of Realtors reported existing home sales for April came in at a seasonally adjusted annualized rate of 4.62 million, up 10 percent from April 2011. In 2010, 4.19 million existing homes were sold. The number rose fractionally to 4.26 million in 2011. Through the first four months, existing home sales are running at a pace of 4.58 million per year. (Here's a long-term chart on housing sales.) Compared with April 2011, the median home prices of existing homes sold in April 2012 were up 10 percent. But that data is notoriously spiky, and the trend from earlier in 2012 was still negative. One positive data point in the release: "Distressed homes — foreclosures and short sales sold at deep discounts — accounted for 28 percent of April sales (17 percent were foreclosures and 11 percent were short sales), down from 29 percent in March and 37 percent in April 2011."
Item #4. Technically, it's from last week. But it's still worth looking at. Last week, the Census Bureau released new housing construction data for April. Again, they're at a level that is depressed from bubble-era heights (duh!) but that is showing a clear rising trend from the year before. Housing starts in April were up 29.9 percent from April 2011. In the first four months of 2012, housing starts are up 25 percent from the first four months of 2011. Even factoring out the surprisingly balmy winter, that's a big increase. There were big rises in home starts in the South and West, areas in which winter weather doesn't usually inhibit construction work. The number of new units completed in the first four months of 2012 was up more than five percent from first four months of 2011.
For the last four quarters, the rise in housing-related activity has made residential investment an enabler of growth. According to the Commerce Department, residential investment has added to GDP for the past four quarters: by .09 in the second quarter of 2011, by .03 in the third quarter of 2011, by .25 in the fourth quarter of 2011, and by .4 in the first quarter of 2012.
A small item in the Wall Street Journal noted that existing home sales aren't yet back at pre-recession levels. Of course they aren't. The pre-recession levels were once-in-a-century insane bubble figures, on home sales. None of the measures related to housing — especially pricing — is likely to reach pre-recession levels for several more years. Instead, we should be looking at whether activity is rising off its lows rather than revisiting them. We should be looking at whether the gains are sustained, and sustainable. The news flow is increasingly suggesting that they are.
Daniel Gross is economics editor at Yahoo! Finance.
Follow him on Twitter @grossdm; email him at firstname.lastname@example.org.
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