(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Martin Hutchinson
NEW YORK, July 19 (Reuters Breakingviews) - The U.S. housing sector is poised to boost economic growth. While existing home sales fell 5.4 percent in June from May, other indicators suggest a recovery is under way. A flip to a positive impact after dragging on GDP for five years will give lawmakers a chance to change distorting housing market policies.
Despite the short-term decline, existing home sales last month ran 4.5 percent faster than in June last year. More encouraging, the median sale price increased 7.9 percent year-on-year. Home buyers and their lenders should gradually regain confidence that their investments will be sound.
Home construction activity seems to be running ahead of the housing market itself, as permits and starts in June were both up around 20 percent on the previous year. However the National Association of Homebuilders’ confidence index, while sharply higher in June than May, is still well below housing boom levels, so optimism is still appropriately contained.
The housing slump sliced more than one percentage point off real GDP growth in 2007 and 2008. But the sector’s impact turned positive in the last quarter of 2011 and residential investment added 0.42 percentage point to annualized growth in the first quarter this year. If the year-on-year growth in housing starts is a reasonable proxy for the increase in residential investment since the second quarter last year, then a rough calculation suggests housing could contribute as much as 1.5 percentage points to annualized second-quarter GDP growth. That could mean the economy expanded more than many economists expect. Continuing housing growth should also make a sizeable dent in unemployment.
President Barack Obama’s re-election campaign may draw comfort from this trend. But the policy implications should also be clear. Housing policy – not just bad bank lending – helped inflate the bubble which, upon bursting, triggered the recent financial crisis.
A variety of recent initiatives to support the market will need to be wound down. Government guarantees for home loans through finance giants Fannie Mae FNMA.OB and Freddie Mac FMCC.OB and other channels need a comprehensive rethink. So does the tax subsidy on mortgage interest. Major changes need perhaps a decade to be phased in. With a recovery taking hold, early 2013 looks like the right time to start putting plans in place.
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- Existing home sales in the United States declined 5.4 percent in June from May to an annual rate of 4.37 million. Sales are 4.5 percent above the level in June 2011, according to the National Association of Realtors on July 19. The national median existing home price was $189,400 in June, up 7.9 percent from a year earlier.
- According to Freddie Mac, the average 30-year conventional fixed-rate mortgage rate fell to a record low of 3.68 percent in June.
- Privately-owned housing construction starts in June ran at an annual rate of 760,000, 6.9 percent above the level in May and 23.6 percent higher than June last year, according to a Census Bureau report released on July 18.
- Builder confidence in the market for newly built, single-family homes rose six points to 35 on the National Association of Home Builders/Wells Fargo Housing Market Index for July, the highest level since March 2007, according to the NAHB on July 17.
- NAR report: link.reuters.com/jeg59s
- Census Bureau report: link.reuters.com/heg59s
- NAHB report: link.reuters.com/geg59s
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- For previous columns by the author, Reuters customers can click on [HUTCH/]
(Editing by Richard Beales and Martin Langfield)
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