Is Housing Really Recovering?

In The New York Times, University of Chicago economist Casey Mulligan offers some housing-market optimism:

Recent reports on housing starts, new home sales and housing prices show that the housing recovery continues….

Although the housing inventory exceeded the demand in 2007 and 2008, we have known for a while that the fundamental supply and demand ingredients would permit a genuine housing recovery to begin in 2009. As demand caught up, housing prices stopped falling and stabilized at more normal levels.

Although housing prices should not be expected to return to their 2005 peak any time soon, housing sector data released last week suggest that housing prices can head somewhat higher. Housing permits and housing starts have continued higher in the last couple of months. New home sales were higher in March than they had been for a while.

These seems overly sunny to me. First, the demand side of the equation. Massive governmental interventions underpinned much of the housing recovery in the past year, including the $12.6 billion in tax credits for home-buyers and the $1.1 trillion mortgage-backed securities buy-up program by the Federal Reserve. Economists have pooh-poohed the tax credits for simply providing a subsidy to people who would have bought a house anyway, but the Treasury says they might have accounted for up to a quarter of housing demand. And with those programs sunsetting — the Fed program last month, the tax credits at the end of the week — demand looks certain to fall, particularly since it will not be buoyed by declining joblessness or growing wages any time soon.

On the supply side of the equation, there were 930,000 houses in the foreclosure pipeline in the first quarter. Fannie Mae and Freddie Mac own a further 500,000. (S&P says the shadow inventory of homes might take three years to clear.) On top of that, housing starts are rising.

I don’t consider it unlikely that the housing market might stabilize nationally. But, in many markets, the pressures to the downside remain extraordinary. And housing starts do not a real recovery make.