Housing: Still Going Nowhere Fast

There's not much cheer in housing these days, unless you're a buyer with a fair amount of cash. Otherwise, the depressed state of residential real estate rolls on. Yesterday's update on building permits and new housing starts doesn't change much, although with each month it's becoming clearer that the bleeding has stopped. There's also the usual bit of volatility on a monthly basis, and sometimes that dispatches a bit of good news. But it doesn't mean much when you look at the big picture for this market. A recovery worthy of the name is still nowhere in sight.

New building permits dropped more than 10% last month vs. December, the Census Bureau reported yesterday. Meanwhile, new housing starts jumped 14.6% in January. But the monthly data should be used primarily for amusement at this point. As everyone knows, the housing market fell off a cliff a few years back and hasn't been able to climb back up.

A picture's worth a thousand words in that regard, as the chart below reminds. It's going too far to say that housing has reached a permanently lower plateau, but few analysts are making bold claims that this market's set to rebound sharply in the near term.

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The good news, so to speak, is that housing has at least found a plateau. It's one at greatly diminished levels, of course, but that's certainly preferable to rapidly collapsing levels. But any cheer on that front is quickly muted once you realize that treading water will probably be with us for some time. There are any number of reasons why that's a reasonable guess of the foreseeable future, and more reasons for erring on the side of caution continue to roll in.

The latest obstacle for housing is the news that "the down payments demanded by banks to buy homes have ballooned since the housing bust, forcing many people to rethink what they can afford and potentially shrinking the pool of eligible buyers." According to the story from yesterday's Wall Street Journal, "Higher borrowing costs and heftier down payments could send housing prices falling further."

If so, there's one more reason for thinking that any revival in housing is a ways off. "Housing activity is going to remain at depressed levels this year," opines Ellen Zentner, a senior macro economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, via Bloomberg. "We’ve got home prices that have taken another leg down and will probably stay down through midyear."

So far, the weak housing market hasn't derailed the rebound in the overall economy. Job creation is still weak, but a broad measure of the macro trend has taken wing in recent months. The question is whether the ongoing slump in housing will eventually infect the economy's recent gains. The risk looks fairly low if housing stabilizes, which it seems to be doing. But another leg down in prices and activity would be more than slightly hazardous at this late date.