An Early Real Estate Recovery?

Ed Leamer, Director of UCLA’s Anderson Business School, predicts that real estate will lead us out of this recession, just as it has in the past. We believe he is right; the only question is when.

The most recent Case-Shiller housing price index shows that some regions are close to a bottom such as the Boston, Denver, and New York metro areas. Unfortunately, the California metropolitan areas of San Francisco and Los Angeles are still in bubble territory.

But several real estate indicators have been improving, including a 22 percent boost in February housing construction and 3 percent increase in building permits. It was the largest increase in housing starts in 19 years, though most of it was new apartment units and is subject to huge monthly swings.

Another heartening sign was the 5.3 percent boost in February existing-home sales, with the western region up 30 percent! And affordability has been steadily increasing, with the National Association of Realtors Housing Opportunity Index showing that 62 percent of all homes sold in Q4 2008 were affordable to families with a median income of $61,500, up from 47 percent at the end of 2007.

Existing home sales have been stuck at the 5 million unit range now for almost 1 year. The problem is the large inventory of foreclosed homes that have flooded the market. Relief should come from the Housing Assistance and Sustainability Plan (HASP) that was recently introduced. More than $7 billion has been set aside to inject additional monies into Fannie Mae and Freddie Mac, and to lenders who will drop their interest rates to lower mortgage payments in order to keep more families in their homes.

Harlan Green © 2009