MacroScope

Housing healing

April 9, 2012

More than six years after its spectacular collapse, the U.S. housing market – the laggard of the struggling economic recovery – may be poised for pickup, driven in part by an upswing in remodeling, Bank of America-Merrill Lynch economist Michelle Meyer thinks.

Gains are likely to be modest at first, and are subject to volatility since overall economic growth may well slow in the second half of this year. Also, given the deep hole housing has fallen into, the market is still far from a robust recovery, Meyer wrote in a note to clients drawn from recent research.

Still, some evidence points to the beginnings of an upswing. For one, data already indicate a rebound in spending on renovations. Remodeling will pick up steam as investors convert foreclosed properties into rentals, and homeowners who have held off doing repairs or additions decide the time is ripe, Meyer said.

Stronger housing markets are also likely to be supported by a reversal of declines in household formation, which slowed dramatically as graduates opted to live at home or as people who lost their homes through foreclosures went to live with relatives or friends, she said.

Meyer and her colleagues also see an unleashing of pent-up demand for homes among homeowners who have put off the voluntary move up to a larger or more expensive home:

The long-awaited recovery in one of the most depressed sectors in the economy has begun, but it will be a long journey.

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