WASHINGTON – April 10, 2013 – In the past year, we’ve seen solid growth in house prices in most areas of the country, double-digit growth in both new and existing home sales, and a continuing flood of mortgage refinancing. While this should not be cause for breaking out the champagne, we can at least say that things are moving in the right direction.
Many people might not appreciate the extent of the recovery because they continue to think of the housing market as though the years of the bubble were normal.
For example, existing home sales were 4.65 million in 2012. By comparison, existing homes sales averaged fewer than 3.5 million in the years 1993-95, before the housing bubble began to drive the market.
Even adjusting for population growth, the 2012 sales rate was far above the pre-bubble pace even if it is well below bubble peaks of more than 7 million.
Construction has also been rising rapidly, albeit from a very low base. The continuing weakness in construction should not be surprising. The building boom of the bubble years has left the country with an enormous oversupply of housing. Vacancy rates are still near record highs, in spite of being down from peaks reached in 2009-10.
This huge backlog of vacant homes will prevent construction from returning to normal (not bubble) levels for several years.
The Federal Reserve’s low interest policy deserves serious credit here. This has made it much easier to buy homes than would otherwise be the case. It also has put money in the economy through refinancing. If we assume that the average mortgage interest rate has fallen one percentage point as a result of Fed policy, it means that homeowners have an additional $80 billion (0.5 percent of GDP) to spend each year.
Of course, many people still can’t buy homes. But this is the result of high unemployment – an area where the government has done a very poor job.
There are serious grounds for complaint about the response to the housing crash. Too little has been done to allow underwater homeowners to stay in their homes. The first-time home buyers’ tax credit was a monument to misguided policy, encouraging people to buy homes at bubble-inflated prices. Speculative bubbles, driven by investors, appear to be growing in several markets.
Nevertheless, on the whole, the housing market seems to be on a positive path at the moment.
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C.
Copyright USA TODAY 2013
Many people might not appreciate the extent of the recovery because they continue to think of the housing market as though the years of the bubble were normal.
For example, existing home sales were 4.65 million in 2012. By comparison, existing homes sales averaged fewer than 3.5 million in the years 1993-95, before the housing bubble began to drive the market.
Even adjusting for population growth, the 2012 sales rate was far above the pre-bubble pace even if it is well below bubble peaks of more than 7 million.
Construction has also been rising rapidly, albeit from a very low base. The continuing weakness in construction should not be surprising. The building boom of the bubble years has left the country with an enormous oversupply of housing. Vacancy rates are still near record highs, in spite of being down from peaks reached in 2009-10.
This huge backlog of vacant homes will prevent construction from returning to normal (not bubble) levels for several years.
The Federal Reserve’s low interest policy deserves serious credit here. This has made it much easier to buy homes than would otherwise be the case. It also has put money in the economy through refinancing. If we assume that the average mortgage interest rate has fallen one percentage point as a result of Fed policy, it means that homeowners have an additional $80 billion (0.5 percent of GDP) to spend each year.
Of course, many people still can’t buy homes. But this is the result of high unemployment – an area where the government has done a very poor job.
There are serious grounds for complaint about the response to the housing crash. Too little has been done to allow underwater homeowners to stay in their homes. The first-time home buyers’ tax credit was a monument to misguided policy, encouraging people to buy homes at bubble-inflated prices. Speculative bubbles, driven by investors, appear to be growing in several markets.
Nevertheless, on the whole, the housing market seems to be on a positive path at the moment.
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C.
Copyright USA TODAY 2013
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