Housing Will Add to the Economy's Growth This Year

Excerpt from Housing Will Add to the Economy's Growth This Year
By Jerome Idaszak, Associate Editor, The Kiplinger Letter

It’s another small sign that the economy is improving: Flickers of life in the housing industry. True, it’s nowhere near the usual pattern, in which housing soars as a recession ends. But look for the industry to make a small contribution to GDP growth this year instead of subtracting from it, as it has in 17 of the past 20 quarters.

The industry will also add jobs this year -- a small gain of about 125,000, after shedding 1.44 million since 2006. Housing starts are slowly inching up, getting a big boost from apartment construction in January.

Starts of single-family houses will be up a smidge this year, climbing to about 650,000 from about 590,000 last year. That’s about one-third of the total racked up each year from 2004 to 2006.

New-home sales will linger near historical lows, around 350,000 this year. Traffic at model homes is on the rise, but sales will take a while to materialize.

Sales of existing homes will creep higher, to just over 5 million this year from just under that mark last year. Mortgage rates remain attractive, with the 30-year fixed rate loan near 5%, about where it was one year ago.

Another good sign: Fresh loan delinquencies are waning. These track the job market -- specifically, the filing of initial claims for unemployment benefits. Prices will continue to slide lower through midyear or so -- an additional 4% on average, a bit more in once-hot markets.

Signs of improvement, then, indicate that the depression in housing is nearly over. But major gains remain in the distance. Supply and demand are still out of whack, and balance will come only with substantial job creation and a renewed appetite among consumers.

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