Housing Recovery May Help Obama Even as Remedies Short
President Barack Obama is getting a boost from a damaged part of the U.S. economy that his policies have done little to repair.
A long-awaited housing recovery is helping lift consumer sentiment to its highest levels since the start of the financial crisis, just in time for the Nov. 6 election. Home prices are rising, sales of new homes are at a more than two-year high and housing starts are running at their fastest pace since 2008.
After five years of shrinkage, Americans’ real estate holdings have risen in value for two consecutive quarters and are worth $730 billion more than at the end of 2011, Federal Reserve data show. More than 1.3 million homeowners who were “underwater” on their mortgages -- the owners owe more than their property is worth -- have moved above the break-even point on their homes, according to CoreLogic of Santa Ana, California.
“People are beginning to buy into the idea that a real recovery in housing is under way; that has to affect confidence,” said Jim O’Sullivan, chief U.S. economist for High-Frequency Economics in Valhalla, New York. “The housing meltdown was so central to the crisis, even a modest recovery brings with it pretty powerful symbolism.”
Nationally, home prices have rebounded from their post- crash lows. The S&P/Case-Shiller 20-city index released this week rose 2 percent in August from a year earlier. A broader index by CoreLogic, a real estate information service, showed prices up 4.6 percent in August compared with a year earlier.
In September, sales of new single-family homes hit 389,000, their fastest pace since April 2010 and a 27 percent gain from a year ago.
“Clearly, demand conditions have changed for the better,” Richard Dugas, chief executive officer of PulteGroup Inc. (PHM), the largest U.S. homebuilder by revenue, told analysts on Oct. 26.
Obama’s allies, and many economists, say the housing turnaround is feeding the public’s brightening mood. The October University of Michigan consumer confidence measure hit 82.6, its highest mark in five years and up from 55.7 in August 2011.
“Anything that leads people to feel the economy is improving is good for the president,” said Mark Mellman, a Democratic pollster, adding that the impact would likely be greatest in states, such as Nevada, where home prices are recovering after the deepest plunges.
Not everyone is convinced that housing is back. Banks are slowly selling off repossessed homes; that overhang will curb any upward price movement, said Chris Whalen, senior managing director at Tangent Capital Partners LLC. Too few would-be homebuyers can qualify for mortgages from banks that, because of tighter regulations, are reluctant to extend credit.
“The regulatory environment is going to be very negative for housing,” Whalen told Bloomberg Radio on Oct. 26.
Even with the recent rebound, new-home sales are well below the peak 1.4 million rate of mid-2005.
And while Obama may benefit politically from improving public sentiment, his policies haven’t done much to spur the emerging recovery. Efforts to reduce the burden of mortgage debt carried by millions of Americans, freeing them to support an economic recovery by resuming normal spending, have drawn criticism from Republicans and Democrats alike.
In February 2009, the president vowed to protect as many as 9 million Americans from losing their homes to foreclosure. To date, 2.7 million borrowers have been able to refinance or modify their loans via the government’s two main housing programs.
Since 2007, when housing prices began their downward plunge, more than 4.5 million others have lost their homes to foreclosure, according to RealtyTrac Inc. of Irvine, California.
The foreclosure crisis may have crested. In September, 6.39 percent of mortgages were delinquent for 90 days, down from 8.14 percent a year earlier and a peak of 11.12 percent in March 2010, according to data compiled by Bloomberg.
Foreclosure filings, including default notices, scheduled auctions and bank repossessions, affected 180,427 properties in September. That represented a 7 percent decline from August and a 16 percent drop from one year earlier, according to RealtyTrac.
Mortgages also represent a smaller drag on household finances. Homeowners spent 9 percent of their disposable income on mortgage payments in the second quarter, down from a peak of 11.3 percent in the third quarter of 2007, according to the Federal Reserve. That burden has fallen for 13 consecutive months and is back to its 2002 level.
Since the end of 2011, the percentage of mortgage-holders who were underwater on their loans fell in seven of the nine most competitive swing states, including Virginia and Colorado, according to CoreLogic.
“We started to see the market turn around several months ago, at the very end of 2011,” said Greg Zadel, 53, a real estate agent in Firestone, Colorado, about 30 miles north of Denver. “The change was one more of confidence, not so much doom and gloom.”
Prices in Colorado rose 6.9 percent in August from a year ago, according to CoreLogic, matching the gain in Florida and trailing only Nevada’s 9 percent among the states where voters have supported presidential candidates from either party in the recent past.
Still, the housing recovery’s political consequences may be limited. In Ohio, the share of underwater homeowners rose 0.2 percentage points to 24.1 percent. And sizeable percentages of homeowners in Nevada, 58.6 percent, and Florida, 42.7 percent, remain underwater.
With the economy saddled with high unemployment and slow growth, some Republicans say the political benefit of the housing recovery will be modest.
“We’re just not talking about a lot of people,” said Tony Fratto, who was a White House and Treasury Department spokesman in the George W. Bush administration.
On the campaign trail, the president claims credit for the rebound even as his opponent predicts further weakness.
“Housing prices are beginning to rise,” Obama said at an Oct. 25 rally in Virginia. “We’ve got a long way to go, Virginia, but we’ve come too far to turn back now.”
Republican presidential candidate Mitt Romney warns that in a second Obama term, “I’m convinced you’re going to see the values of your homes continue to bump along in the basement.”
Romney, too, has struggled to define an answer to the crisis. In October 2011, he criticized administration efforts to prevent foreclosures, saying the process should be allowed “to run its course and hit the bottom.” A few months later, he told a voter roundtable that “the idea this is going to cure itself all by itself is probably not real.”
A seven-page housing primer his campaign released in September promised to “reduce the outsized role of government and revitalize the private sector’s role in the housing market” without offering much detail.
In any case, residential investment, which acted as a drag on the economy for six consecutive years, is now contributing to growth. In the third quarter, housing added 0.33 percentage points to the overall 2 percent annual growth rate, according to the Bureau of Economic Analysis.
Rising prices have lured homebuilders back into action. Housing starts, which bottomed at an annual pace of 478,000, rebounded to a rate of 872,000 in September, the Census Bureau said. The improvement is making itself felt in the earnings of homebuilders such as PulteGroup of Bloomfield Hills, Michigan, and suppliers, including Oshkosh Corp. and Eagle Materials Inc. (EXP)
“The housing recovery that drives so much of our results is clearly picking up momentum,” Oshkosh Chief Executive Officer Charlie Szews said on an Oct. 26 analysts call, citing increased demand for concrete mixers and wallboard loaders.
Annual demand for Eagle Materials’ wallboard is running at 20 billion square feet, up from 17 billion last year, Steven Rowley, CEO of Eagle Materials in Dallas said on Oct. 30.
The labor market has seen less dramatic improvement. Unemployment among construction workers has fallen to 11.9 percent from a peak of 27.1 in February 2010, a gain that’s due more to individuals leaving the industry than finding new jobs. In September, 5.5 million Americans worked in construction, more than 2.2 million fewer than at the bubble-era high in April 2006, according to the Bureau of Labor Statistics.
O’Sullivan’s broader measure of housing employment, including workers in hardware and furniture stores, wood products, and architectural firms, shows an average monthly gain of about 11,000 jobs over the past year. He expects that figure to pick up to about 30,000 in a few months, as the housing recovery demonstrates staying power.
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