Good news percolating on housing
Housing and employment are perhaps two of the most interconnected and politically important economic statistics. Thus, Wednesday’s various housing-related data releases – all of which are positive – are a welcome sign of things to come, should European financial troubles not derail us.
The National Association of Home Builders reported that its index of current situation and future expectations rose 4 points to 25, its highest level since June, 2007. While 50 is still the dividing line between a growing industry and a shrinking industry, the improvement, which was above all forecasts, is an important continuation of a modest but positive trend.
The Mortgage Bankers Association reported a large increase in mortgage applications, though much of the activity is in refinancing. The composite index was up 23%, with new purchase applications up 10 percent and refinancing applications up 26 percent. (These are week-over-week changes.)
And in their monthly report on industrial production, the Federal Reserve’s data shows a 1 percent month-over-month and a 4.6 percent year-over-year gain in construction materials.
Stocks of home builders reacted positively to the news, with some of the biggest names (Lennar, Pulte, Toll Brothers) up 4 percent after an hour of trading on Wednesday.
Housing and employment are deeply connected:
If people have no confidence in their ability to get a job, or get a better job, whey will not move into bigger, more expensive homes even as their families grow. And obviously if people lose jobs, they often lose their homes. Furthermore, if companies are not hiring, then people are not moving to new locations and buying homes, so demand is further diminished (though that person moving would represent supply pressure in his current home market.)
Conversely, if housing is weak and people are “under water” on their mortgages, meaning they owe the bank more than they can sell their homes for, they are largely constrained from moving. This means they can’t get into a bigger, better home (even if that other home is also relatively cheap) and, more importantly, can’t take a new job which would require moving except in the rare case where the employer is willing to cover the gap between the home’s value and the mortgage due. That sort of signing bonus is obviously more likely for a small, highly sought after group of workers, whether high-level executives or people with valuable specific skills such as the best computer programmers or professional athletes.
It’s not easy to see how this vicious circle is broken. After all, weak employment causes weak housing, which in turn causes weak employment.
But expectations play a big part in both of these: Employers who think things are improving (perhaps because they anticipate a political change following our next election) will take a little more risk and hire a few more people. We’ve seen a little of that in the employment data, though much of the recent drop in unemployment (to a still very high 8.5 percent) is due to the opposite phenomenon: people with so little confidence in the ability to find a job that they simply give up. Some, including me, expect a slight uptick in unemployment as those people decide to test the waters again even as the number of new hires accelerates.
And people who are on the fence about buying a bigger home might be pushed off the fence and make the purchase if their confidence in their own employment situation improves, whether due to an increased likelihood of a raise or simply a lower chance of being fired.
Also, improving job situations and improving economic confidence will, despite the heavy hand of regulators on banks, make it easier for people to get mortgages, whether for new purchases or for refinancing. Furthermore, the huge amount of refinancing activity is a substantial positive for Americans’ standard of living. I don’t buy into the Keynesian view that aggregate demand is all that matters. Still, if American consumers have billions of dollars in their pockets rather than paying that money in higher mortgage interest payments, it must be beneficial to the economy whether because consumer spending increases or because investment capital levels rise.
I maintain my view that the economy is doing modestly well, despite the most anti-business American government since FDR, because of the American entrepreneurial spirit. Today’s housing data is the latest small sign that things aren’t as terrible as they easily could be given our president and his union thugs and radical leftists controlling the levers of power. Because of our federal government, this recovery is much slower and more shallow than it should be. And it could be torpedoed, at least temporarily, by events in Europe or possibly the Middle East. Nevertheless, we shouldn’t let political views cause us to ignore good data, which Wednesday’s numbers undoubtedly were.
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