Housing May Finally Be Turning Around

(MoneyWatch)  After a three-year slump, we may finally be seeing signs of stabilization in the housing market.

In a new report out this week, the Commerce Department said that single-family housing construction starts rose 1.7 percent from June. It was the fifth consecutive monthly increase for single-family housing starts.

In addition, the report said permits to build single-family homes rose 5.8 percent in July compared with June. Taken together, the housing starts numbers and building permit statistics are indicators of future economic activity and may indicate that housing is probably beginning to turn around.

The report was less sanguine about apartment buildings and condos, which suffered major declines in starts and permits. That is believed to be caused by credit drying up for developers. Since single family homes sales were the cause of the greatest recession since the Great Depression, it's very interesting that they are now at least bottoming out.

Another sign of improvement came from the National Association of Home Builders, which together with Wells Fargo calculates builder confidence. According to the NAHB, builder confidence rose one point to 18 in July, the highest level in more than a year. In addition sales expectations in the next six months rose four points while the traffic of perspective buyers rose three points. These are all signs of a slowly improving market.

NAHB Chairman Joe Robson, a home builder in Tulsa, Oklahoma, said that builder confidence has been boosted by the success of the first-time home buyer tax credit of $8,000, which will expire on November 30. "The question is what happens after that -- whether there will be enough momentum to keep us moving toward a recovery, particularly in light of such headwinds as the severe credit crunch for housing production loans and inappropriate appraisal practices that are scuttling a quarter of all new home sales," Robson said. As a result the NAHB is asking Congress to extend the first-time home buyer tax credit for another year.

The rise in home builder confidence follows a report from the National Association of Realtors that existing home sales had risen 3.5 percent in the second quarter compared with the first quarter of the year. These are all good, healthy signs of a recovery

Another positive indicator came on the mortgage front. Mortgage loan application volume increased by 5.6 percent in the week ending August 14, compared with the previous week, according to the Mortgage Bankers Association. The group's refinance index rose 6.9 percent.

Those increases could be the result of a hefty decrease in interest rates during the week. The average rate for a 30-year fixed rate mortgage decreased to 5.15 percent from 5.38 percent the week before. The interest rate has been bouncing all over the place in recent weeks, so buyers may crowd into the market when rates fall.

And home owners' perceptions are changing, too. According to a survey conducted by Zillow.com, a majority of homeowners now think the value of their home will not decrease any more in the future. The survey said 34 percent think their home's value will increase, 47 percent think the value will remain the same, and only 19 percent think their home's value will decrease.

Are they merely dreaming? Perhaps it is misplaced optimism, but isn't that what the housing market is all about? It's been three years since the market started falling, so perhaps the time has come for stabilization in the market, if not a turnaround.