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US housing market recovery is on its way, but slow, analysis suggests

Mark Fleming, chief economist at date company CoreLogic points out that while economically the nation was buffeted by natural disasters and fiscal policy indecisiveness at home as well as the European sovereign debt crisis abroad, the US economy was able to stave off economic stagnation in 2011 and is likely to continue to do so in 2012.

‘Housing statistics and the duration of the housing downturn to date indicate that 2012 may be the year we begin to turn the corner,’ he said.

He pointed out that in the summer of 2011 economic concerns peaked as the economy appeared to be on the brink of stagnation. ‘Since the recession officially ended, this was a nadir for the economy as consumer confidence plummeted, concern about a double dip recession resurfaced, and fiscal policy indecisiveness reached its zenith,’ he said.

But in the second half of the year, and heading into 2012, most major economic statistics were exhibiting an encouraging level of stability and positive, but weak, trends.

‘Though the pace of growth is slow, it is to be expected in an economic recovery caused by a financial crisis. Households are paying off their debts and at the same time accessing credit more easily.

Surprisingly, households also added Home Equity Lines of Credit in the third quarter for the first time since the financial crisis began, which is a positive sign of access to liquidity that softens the impact of income shocks,’ he explained.

A quarterly survey by the New York Federal Reserve Bank shows that housing as prices are the same as at the beginning of the millennium.

‘The time is right in 2012 for prices to begin growing again and housing affordability will put a floor under any further significant declines in 2012. The spring and summer buying season in 2012 will be watched very closely for positive signs of demand,’ said Fleming.

He pointed out that builder sentiment is improving, albeit slowly, and housing starts are also increasing, driven mostly by multifamily starts. Even single family housing starts began increasing at the end of 2011.
‘During 2012, households will need to find their equilibrium between household debt levels and consumption,’ he added.

He also pointed out that consumer sentiment rebounded strongly in the latter part of 2011, posting a six month high in December. While still low compared to pre-recession levels, this figure indicates an improving belief in the strength of the economy in 2012.

‘The labour market seems to be ever so slowly clawing its way toward recovery. In December, jobless claims were at their lowest level since 2008. The unemployment rate is proving stubbornly persistent and gains are often due to declines in the number of people participating in the labour force. The consensus is that unemployment will remain high in 2012 and that it will take a number of years to reduce the level significantly,’ he explained.

‘Nonetheless, there has been consistent private sector job creation in the latter half of 2011. We can expect the persistence of unemployment to be a particularly contentious issue in the 2012 election year,’ he added.
But he also pointed out that real estate is an industry with long business cycles. ‘Typical regional housing recessions have taken anywhere from three to five years to find their bottom. The national housing recession has behaved similarly in that it has bounced along the bottom for the past two years,’ said Fleming.

‘While prices are declining again to new lows, affordability is rising dramatically due to a combination of house price deflation along with rock bottom mortgage interest rates,’ he added.

Existing home sales also started to trend upward at the end of 2011, and were 12% higher in November 2011 compared to January 2011. ‘Putting all of these statistics together indicates there is a very long way to go and that the housing market is likely to sustain these trends in 2012. While we cannot say with a high degree of certainty what 2012 has in store for us, indications based on the latter part of 2011 are that both the broad economy and the housing market are moving toward positive growth in 2012,’ said Fleming.

‘However, some impediments do exist including slower global economic growth, a recession in Europe, and fiscal and political uncertainty in the US. Taking these facts and trends together, we are bullish on the prospect of improving economic performance in 2012 from 2011,’ he concluded.