First Signs of Recovery Will Be in Housing

It seems an article of faith that the first signs of recovery will emerge in the housing market. March data for existing and new homes sales, due out Thursday and Friday, will be trumpeted crocuses of spring if those beat expectations.

Banks report new mortgages are up. If those are more than homeowners refinancing at lower rates, then existing homes sales should dart up from the tepid 4.72 million annual pace recorded in February. The consensus forecast is 4.65 million, and my electronic Ouija board spits out 4.74 million. Something above 5 million would be cause for jubilation.

Buyer traffic on new home lots was weak in March but economists, including this one, are forecasting sales steady at about 340 thousand. Something above 360 thousand would instigate new optimism.

Even with upside surprises, remain cautious.

Supplies of unsold new homes exceed a full year’s supply, housing starts continue to languish, and a burst of new construction is months away.

During the bubble, easy credit made homes and autos artificially inexpensive, and Americans are overstocked on bedrooms and wheels. It will take some time for population growth to create demand for significantly more dwellings and vehicles.

Habits are radically changing. Americans are dinning at home more, spending less on entertainment, and setting limits when they visit supermarkets and malls.

Horror of horrors, those that still have jobs are putting more into retirement and savings accounts.

If Americans are no longer recklessly spending more than they earn, then the Obama Administration will have find other ways to fire up demand for American-made goods and services.

During the bubble, the trade deficit rocketed to more than $700 billion or 5.1 percent of GDP. That was almost all oil to fuel autos and imports from China that exceeded exports by nearly five to one.

To achieve sustainable growth, Americans need to drive more fuel efficient vehicles, and buy less from, or sell more to, China.

Obama’s programs to create green jobs will use domestic coal and gas more efficiently to generate electricity and manufacture products, but those won’t solve the auto MPG problem anytime soon.

We have technologies to produce much more fuel efficient vehicles. However, with autos lasting more than 15 years, quickly changing the fleet requires incentives—a clunker subsidy to put recent-vintage, low-MPG vehicles into the crusher. Replace those Tahoes with crossovers.

Similarly, no sensible person wants blind protectionism, but Obama like Bush is reluctant to challenge China’s economic development strategy of undervaluing its currency, subsidizing exports and blocking imports of competitive American products. Now, China is exporting the worst effects of the recession, and maintaining six percent growth, by upping its export incentives.

It’s high time for a recalibration of trade policy to ensure trans-Pacific commerce is based on comparative advantage, not Chinese foreign policy ambitions.

Those harm the U.S. economy and make it more difficult for U.S. diplomats to offer democracy and markets to a world increasingly skeptical of American values.

Comments

[Dave Wrixon:]

No problem. Just find another lender of last resort and then tell the Chinese to take a hike.

Apr 22 08:03 AM

[HardwoodFlo...:]

340K in housing purchases this year(or is that estimate per month?). Hmmm. If by year than: that certainly is dramaticaly below the 1.5 million house holds being added (not to mention the 3MM in population growth) a year. I don't diasagree with your estimate but the demographics certainly are running against the activity.

Right nor housing starts are around 500K. On par with the amount of houses that are torn down a year (also 500K). So the country is running a net zero on starts.

With the echo-generation now coming out of college and hitting the streets it should make for an interesting conondrum for housing in the coming years.

Not sure hwo to wrap in the whole thing on China et al discussed here but there are some certainties- China is out for China. The fed chief made some disasterous remarks regarding the dollar and the idea that we shouldn't maintain out stature as the world wide trade currency. I think what you are going to see in relationship to GDP is that people are going to spend real incomes on remodel (cheifly becaause they can't get home equity loans) you will see an uptick in housing as it relates to small builders building for order.

Don't expect the big builders (toll, pulte etc) to partcipate immediately in the housing return. There will be a recovery- as seen with starts being up 16+% int he midwest. It will take a while in the west and the south- like a couple of years.

Apr 22 11:11 AM

[BigJake:]

I don't get why you call it the "Goldilocks" economy. Is it because Goldilocks is a fairy tale or is there something in the story of Goldilocks that mirrors what is going on the economy? If so what? I would like to know. To me, referring to it as a Goldilocks economy seems to be a denigrating term, but Cetin clearly believes that the goldilocks economy is a good thing. So whats behind the "goldilocks" term Cetin?

Apr 22 03:03 PM

[driftwood2:]

The trade balance with China is significant problem. Everyone knows that China manipulates their currency but what many forget is that this is only made possible because of the continual issuance of large amounts of treasuries by a US government that cannot control its spending. Eliminate the deficit and you will eliminate the primary means that other countries use to manipulate dollar exchange rates.

Apr 22 03:14 PM

[Tony Petroski:]

The author: "We have technologies to produce much more fuel efficient vehicles. However, with autos lasting more than 15 years, quickly changing the fleet requires incentives—a clunker subsidy to put recent-vintage, low-MPG vehicles into the crusher. Replace those Tahoes with crossovers."

It used to be said the the definition of a liberal was a guy who was worried someone, somewhere is enjoying life and has to be stopped.

An updated definition: A liberal is a guy who is worried someone, somwhere is out there is driving an SUV or a pickup, roaring past the "green" vehicle and leaving it in a cloud of dust.

Apr 22 03:30 PM

[BigJake:]

Cetin, I did read your blog but I still don't understand why its you chose Goldilocks? Is it a play on words for gold, a reference to some aspect of the goldilocks story, or fairy tales in general? I'm not interested in what you say it is I'm interested in why you decide to call it the "Goldilocks" economy. Is there something I am missing? Am I dense here and just don't see it?

Apr 22 03:49 PM

[Hmm?!:]

BigJake,

The intent......... is to highlight the fact..... that it is not a real economy. The stupid fairy tale that we have a consumption economy.

i.e. Consumer spending is more than two thirds of the US economy. How the hell can that work? Since a lot of what is consumed...... is foreign goods. How can you make up the difference with the other third?........more DEBT!!!

Until no one lends you money anymore. America is the bum at work, still trying to borrow from everyone else.

An economy has to produce....not just consume.

On Apr 22 03:49 PM BigJake wrote:

> Cetin, I did read your blog but I still don't understand why its
> you chose Goldilocks? Is it a play on words for gold, a reference
> to some aspect of the goldilocks story, or fairy tales in general?
> I'm not interested in what you say it is I'm interested in why you
> decide to call it the "Goldilocks" economy. Is there something I
> am missing? Am I dense here and just don't see it?

Apr 24 01:24 AM