Housing market is improving, but slowly

Some data released late last month, during all the preparations for Thanksgiving, has some analysts wondering about the future direction of the U.S. housing market -- and, by extension, the overall economy.

Just before the holiday, the U.S. Census Bureau announced that sales of new, single-family homes in October were at a seasonally-adjusted, annual rate of 458,000. That number was just a very slight uptick compared to the revised September estimate of 455,000.

And one week earlier, the government announced starts for U.S. single-family homes, which make up the majority of the nation's housing market, rose 4.2 percent in October, compared to a month earlier.

While new housing activity, an important economic indicator, appears to be recovering from the worst of the recession, there are still concerns about the overall housing figures.

"Housing is going sideways," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a research note. He also noted that mortgage demand remains flat, with little change expected in the short term.


"But this has little to say about broader economic growth, though," Shepherdson added. "GDP growth has picked up even as housing has stagnated. New home construction is only 3 percent of GDP, so we should not be surprised."

Other analysts believe that, while the economy is indeed recovering, consumers remain wary about their economic prospects -- especially when it comes to their own earnings -- and are staying cautious about any large expenses.

"Although we've seen modest improvement on this front, more robust wage gains could spur further confidence, ostensibly leading to further spending." said Jim Baird, chief investment officer at Plante Moran Financial Advisors, in a research note.

"That in turn should produce more jobs, reducing unemployment and providing a catalyst for stronger wage growth," he added, "all components of a 'virtuous cycle' that could help push the U.S. further toward a self-sustaining expansion, ultimately allowing the Fed to normalize monetary policy."

Paul Diggle, a property economist with London-based Capital Economics, says the latest figures show that new home sales have been flat for several years now. However, he noted recently, conditions are in place for new homes data to strengthen from here on.

Mortgage interest rates, he said, have fallen to their lowest levels in over a year and are expected to rise slowly in the near future, while many banks have loosened up on their mortgage lending standards.

"With credit conditions loosening, employment growth strong and wage growth finally showing signs of a pick-up," he added, "we expect new home sales to perform much better over the next year or two."