Housing and the Economy: Rising from the Ruins
These are a few excerpts from a rather long article in November 5th edition of The Economist, “Housing and the Economy: Rising from the Ruins”. It joins what seems to be a growing, but certainly not universal consensus (per the recent JP Morgan and Hanley Wood analyses) that even nationally – much less San Francisco, which has been performing much better than most markets – speaking to a turning point has been reached in the housing market: prices have bottomed out, buy vs rent calculations have improved dramatically, virtually no new housing having been built (even as population grows), a light discerned at the end of the tunnel on the foreclosure crisis, and so on.
The Economist was virtually the first major business publication to foresee the housing bubble (actually years in advance per their world home values index), and is not known for starry-eyed optimism or boosterism regarding housing markets.
“There are two things everyone knows about American economic recoveries. The first is that the housing sector traditionally leads the economy out of recession. The second is that there is no chance of the housing sector leading the present economy anywhere, except deeper into the mire….Home prices languish near post-bubble lows, over 30% below peak….Housing markets are far from healthy. Yet current pessimism seems overdone. A turnaround in sales, prices and construction may be closer than many imagine.
The potential for a strong housing recovery lies in the depths of the bust… [which] dragged new construction to unprecedented depths. At the current rate, fewer homes will be added to the housing stock this year than in any year since records began in 1968. America therefore has only a minor problem of excess housing supply…Rental markets…look far stronger…Vacancy rates in some cities are strikingly low…[for instance] 3.6% in San Francisco—which translates into rising rents…Rising rents help housing markets heal…by encouraging renters to consider buying…Rental market strength is also rousing a long-dormant building industry. New housing starts rose 15% from August to September…
The convalescence [of the housing market] may be complicated…Yet once the housing sector finds its footing it may quickly gain momentum…Such hopes for housing would smack of an effort to reanimate a corpse, had the bust not so far outpaced the boom. But a turnaround now seems probable on many measures.”