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2009: The U.S. Economy in Pictures - Housing

There's been plenty for economists to chew on this year -- bank bailouts, the levels of interest rates, whether the dollar deserves to be the world's most important currency. The two kitchen-table issues, though, have been jobs and housing. We've probably seen the worst in both, but the healing will go on for a long time, well after we've said goodbye to the Decade of Not.

From a quick read of the headlines of each month's reports on housing sales and prices, you might think that conditions in one of the U.S. economic engine's cylinders have gotten better and better. But even a string of improvements still leaves housing in a very weak state.

It's not even a half-empty, half-full sort of thing, as we hear from sublime econ-blogger Calculated Risk:

Sales in November 2009 were below November 2008 (27 thousand).
...New Home sales fell off a cliff, but after increasing slightly, are now only 8% above the low in January.

-Click on the graph for a larger view-

Sales of existing homes are stronger, but they've been juiced by the tax credit. But whatever the source of the strength, says Calculated, they don't carry the weight of new home sales:
Existing home sales play an important role in the economy because they allow people to move for new job opportunities, or to move to larger or smaller homes for various reasons. [But] nothing has been added to the housing stock or the wealth of the nation... [and] once you have enough -- probably around 4.5 to 5.0 million units per year -- any extra is just a waste.

What matters for the economy are new home sales, housing starts and residential investment. And there has been little improvement in these key indicators - and there will not be any until the huge overhang of excess inventory is reduced.

"Home Prices Still Improving but at a Moderating Pace," reads the headline of the latest reading of the Case-Shiller home price index from Standard & Poor's. Well, that's not good, because the price gains so far have been pretty skimpy. Like home sales, even the latest report of price data is a little stale (some strong views from Sold At The Top, in Seeking Alpha):
Tuesday's release of the S&P/Case-Shiller (CSI) home price indices for October 2009 showed that the non-seasonally adjusted Composite-10 price index remained flat since September while the Composite-20 declined for the first time in six months indicating that the government sponsored housing bounce has clearly drawn to a close.
Now that the strongest selling months have largely been reported, look for all remaining CSI releases to continue to indicate notable price weakness coming from typical seasonal declines as well as extra-seasonal declines as a result of notably reduced demand from activity that was "stimulated" forward into the summer by the tax sham.
(Sold At The Top's home blog is, devoted to the real estate bubble.)

He presents a graph that compares the last housing cycle to today's, from peak to trough, and back to the level of the prior peak. If the 80s-90s dip serves as a guide, we are not quite halfway into the ride of nearly 100 months:

-Click on the graph for a larger view-
This historical stuff is meaningful, but good journalistic practice calls for winding up with a look at the future, especially with a gloomy piece such as this.

Sorry to say that other indicators don't signal much improvement: delinquencies, which have risen to shocking heights, climbed again in Fannie Mae's latest report (as of October 2009). Once again I stand on the shoulders of the giant gone before me:

Just more evidence of the growing delinquency problem, although it is important to note these stats do include Home Affordable Modification Program (HAMP) loans in trial modifications (and the trial modification periods have been extended again).

-Click on the graph for a larger view-
CR makes an important point, because lenders treat HAMP trials as regular delinquencies. Therefore the early stages of progress via HAMP don't show up in these figures, so the rate of gain in delinquencies may have slowed.

But with 10 percent unemployment, and weak new home and auto sectors, it's hard to see how the delinquencies can be resolved any time soon.

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