Counterparties: Green shoots in the housing market

By Ben Walsh
August 8, 2012

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It’s now five years since August 2007, which means that the US is now halfway into its very own lost decade. There is, however, a bit of good news coming from the housing market, as the WSJ’s Nick Timiraos reports:

Prices rose by their largest percentage in at least seven years during the second quarter, propelled by low inventories of properties for sale and high demand for bargain-priced foreclosures… Prices rose by 2.5% in June from a year ago, and by 6% from the previous quarter, said CoreLogic Inc., a Santa Ana, Calif., data firm. The quarterly jump was the largest since 2005… Separately, Freddie Mac, which uses a different methodology, said home prices during the second quarter jumped by 4.8% from the previous quarter. That was the largest jump since 2004.

It’s been long enough since we last saw this kind of rise in home prices that Bill McBride of Calculated Risk thinks it’s worth remembering the economic effects even modest gains in home prices can have. There’s increased profitability at Fannie and Freddie, fewer homeowners with negative equity, lower mortgage delinquency rates, fewer fear-driven sellers adding to excess inventory, and increased private residential investment. That last data point, McBride says, is the “the best leading indicator for the economy”.

Still, that doesn’t mean that younger Americans are going to become home buyers en masse anytime soon. Not only does student debt loom over many first time buyers, but as Bloomberg’s Caroline Fairchild notes, median wages for college graduates fell 10% from 2009-2011 compared to 2007. As a result of this decreased cash flow, the workforce’s newest entrants prefer to rent; they’re delaying making other large purchasing decisions like cars, too.

That isn’t necessarily a bad thing. A less-indebted and more mobile population should be a source of economic strength. But if, as Felix thinks it will, the housing crisis lasts a full decade, those benefits will largely be wasted in a sputtering economy. We really need a housing recovery: let’s hope Calculated Risk is right, and Felix is wrong. – Ben Walsh

On to today’s links:

Tax arcarna
“Should I be preparing to leave the country?”: France’s wealthy react to proposed 75% top marginal tax rate – NYT

Alpha
The market is one step ahead: as earnings growth slows, stock returns increase – Market Watch

Wonks
Popular tax break silly, possible sign of national failure – Matt Yglesias

Good Ideas
Forget congestion pricing. Instead, pay commuters to drive outside rush hour – Arstechnica

Light Touch
Morgan Stanley pays $4.8 million to settle electricity price-fixing that cost consumers an estimated $300 million – Reuters
Treasury and the Fed would prefer “public shaming kept to a minimum” re allegations of banking rogue states – Reuters

China
Report: 16% of China’s wealthy have already left the country and 44% intend to soon – Economist

New Normal
Extended unemployment benefits weren’t “designed to deal with a stagnating labor market of the sort the US” now has – WaPo

The Fed
Bernanke’s “prolonged low interest rate environment has been hurting US households” – Credit Writedowns

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