Monday, October 19, 2009

DEEPEST HOUSING RECESSION SINCE THE 1930S APPEARS TO BE NEARLY OVER

Most Americans may still be dining on franks and beans, but the consensus view is the longest, deepest recession since the 1930s has passed, according to the latest economic outlook from Freddie Mac.

For those who survived the “Great Recession” without losing their home, job or personal wealth, the following facts outline the economic debacle:

• Nationally, job losses stand at more than 7 million since the start of the recession. Midwest states employed one-third of all U.S. workers at the start of the recession, but have absorbed half of the jobs lost largely with manufacturing layoffs, economists say.

• Single-family housing starts nationwide hit a post-1945 nadir during the first quarter of 2009, Freddie Mac observed. “The trend is very consistent across all states—house construction peaked at the end of 2005 and has steadily fallen since then,” noted Frank Nothaft, Freddie Mac vice president and chief economist.

• Housing starts are 60 to 90 percent below their mid-decade highs, based on state-level building estimates from Moody’s Economy.com. And, Illinois is among the 10 states that saw whopping declines in housing starts of at least 80 percent.

However, there is some good news. A new trend—one of recovery—appears to be emerging, analysts say. Starting in the second quarter of 2009, single-family home starts rose in every state except Kentucky.

Home sales, too, seem to have hit a turning point—in all but three states. Existing home sales since the second quarter of this year are above their troughs, according to the National Association of Realtors®.

And, home-loan rates are approaching a record 50-year low. Benchmark 30-year fixed mortgage rates fell to an average of 4.87 percent in early October, down from 4.94 percent a week earlier, Freddie Mac reported.

The last time average 30-year fixed-rate loans were lower was the week ending May 21, 2009, when it averaged 4.82 percent. Rates hit a record low of 4.78 percent on April 30, 2009. A year ago, lenders were charging 5.94 percent.

“Low mortgage rates are helping to stabilize home sales,” said Nothaft. “New home sales in August rose to the highest annualized pace since September of 2008 and the inventory of unsold houses fell to the lowest level since February 1983.”

Furthermore, Nothaft noted that home prices increased for the second month in a row in July, after adjusting for seasonality, based on the 20-city composite S&P/Case-Shiller Home Price Index.

With near record low mortgage rates, homes selling at half price and the first-time home buyer tax credit, purchase are being lured off the fence.

In California, one of the states hit hardest by the recession, inventories of homes for sale have become tight for homes priced below $500,000. The supply of available homes has fallen from six to nine month backlog in the summer of 2008 to about three or four months this past summer. This is encouraging would-be buyers to stop procrastinating lest they lose out on potential bargains.

However, Freddie Mac warned that the backlog of loans in foreclosure has the potential to derail the momentum in the housing markets if a large wave of properties transition through foreclosure faster than buyers can absorb them.

If buyer sentiment has truly changed, house-hunters may simply view the new supply of distressed properties for sale as a great opportunity for getting a bargain, Nothaft observed.

An additional risk is the pending expiration of the first-time home buyer tax credit and what will happen to interest rates. The consensus view among economists is that in 2010 fixed-rate mortgage rates could average one-quarter to one-half of 1 percentage point above their current bargain levels.

“While signs of a U.S. recovery are tentative to date and the economy remains quite fragile, these many forces are helping to support growth,” Nothaft said. “The process will take some time, but eventually will lead to job creation and increased confidence in the medium-term outlook.”