Sunday, April 4, 2010

Could the housing market spoil the recovery?

Irwin Stelzer has a column in the business section of the Sunday Times Online (UK) called Housing market could spoil the recovery party.  He begins on a positive note:

The gloom is dissipating. The jobs market is improving: 162,000 new jobs were created in March. Factor out the 48,000 hired temporarily to help with the census, and you still have positive growth. Employment in the hard-hit construction industry — which lost 864,000 jobs in the past 12 months — held steady, while jobs were added in manufacturing, mining, healthcare and temporary services.

He goes on to analyze some other signs of hopefulness for the economy.  But it isn't all good news, because of that pesky US housing market.  Responding to several signals of an uptick in investor confidence in the real estate sector, Seltzer cautions:

They may be in for an unpleasant surprise. New home sales are still lagging, the supply of unsold homes remains high, the tax credit for first-time buyers expired last week, at the same time as the Federal Reserve Board discontinued its $1.4 trillion programme to purchase mortgage-backed securities. The housing market is key to creating construction jobs, and all the jobs that go with furnishing a home.

If these headwinds prove too strong, the arrival of spring will see the bears emerge from hibernation, especially if the recovery proves to be only “a sugar high” based on unsustainable government spending and low interest rates, which the bond vigilantes will, sooner rather than later, drive up.

It was the real estate boom that helped cause the economic crisis, and now it might be the real estate bust keeping things slow.

Matt Festa

Financial Crisis, Housing, Mortgage Crisis, Real Estate Transactions | Permalink

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