U.S. Housing Market

April 26, 2011

It’s been five years since U.S. housing prices began to buckle.  The belief was very prevalent during the brunt of the Great Recession that a self-sustaining U.S. economic recovery would not be possible unless and until the housing market implosion ran its full course and had hit bottom.  Less than two months shy of the second anniversary of the present economic upturn finds housing prices falling more slowly but still sliding nonetheless.  According to Case Shiller survey data, average house prices in twenty metropolitan areas dropped 3.2% at an annualized pace in the three months between November and February, down from a 4.6% annualized rate of decline in the previous three-month period.  The pace of decline in the most recent three months is similar to a drop of 3.3% from February 2010, and house prices in the latest month were 31.4% below their April 2006 peak. 

Naturally, a fairly wide disparity exists among cities ranked by their peak to present percentage declines in house prices.  Las Vegas (down 58.0%), Phoenix (55.2%) and Miami (50.1%) have each seen their prices at least halved from peak.  Chicago (30.8%) and Washington D.C. (32.3%) and near the national norm, and some northeastern metropolises have had smaller-than-average drops like New York (23.2%) and Boston (14.5%).  House prices in energy-intensive Dallas are only 4.9% below their April 2006 levels.

There is also quite a dispersion in recent housing market conditions.  Prices in Seattle (down 14.4% annualized), Minneapolis (off 12.8%) and Miami (down 10.1%) posted double-digit annualized drops over the past three reported months, while those in Boston (+1.9%), Washington (+4.8%) and Detroit (+8.8%) are part of a minority of areas to experience higher housing prices.

Unlike late 2008 and the first quarter of 2009, the continuing slide of real estate wealth has been counter-balanced by recovering wealth held in equities.  But it’s been a period of very high unemployment, so consumer confidence has understandably remained weak.  The Conference Board consumer confidence index in April of 65.4 lay below the first-quarter average reading of 66.3 and almost 30 points under then long-term mean for this data series.  What is surprising is the strength of consumer spending.  Real consumption expenditures advanced 4.0% annualized in the final quarter of 2010 and by 2.6% between 4Q09 and 4Q10.  Weekly indications of chain store sales suggest a pretty solid consumer appetite during the Easter-laden month of April.

Still to be determined, however, is how well the U.S. economy can stand on its own without the support of very easy Fed policy.  Fiscal policy has already begun to retrench.  Government expenditures contracted 1.7% annualized in 4Q10 and were only 1.1% larger than in the final quarter of 2009.  But monetary policy has continued to blast away.  Most of the $600 billion of QE2 is now completed, and markets see a strong likelihood that quantitative easing will not continue past midyear.  Meanwhile, exports have lost some momentum despite continuing dollar slippage, and elevated food and energy prices can be expected to exert mounting drag on domestic demand in the future.  The theory has not yet been appropriately tested that a self-sustaining upturn needs a stable housing market, but that moment of truth is coming soon.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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One Response to “U.S. Housing Market”

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