Freddie Mac issued a report Wednesday claiming the housing market may be emerging from a long slump. The government-backed mortgage giant happily cited the National Association of Home Builders/Wells Fargo confidence index, which is up for the fifth month in a row. The home builders forecast increased home sales for the coming year, based on an expectation of higher economic growth. Unfortunately for Freddie Mac, the real data provide little reason for such optimism.
Freddie Mac also cites the related reports that jobless claims recently reached a four-year low. Nonetheless, both joblessness and the level of new claims remain at historically high levels, which is particularly troubling at this point in a recovery when the economy should be growing rapidly. More than 7.1 million Americans still claim unemployment benefits, and millions more aren't counted because they have simply given up looking for work. Even with the four-year low, there were 359,000 new applicants for unemployment benefits in the third week of March, not much lower than the previous week's 364,000.
Housing sales actually fell 1 percent in February. Home prices have been dropping for several months, with the Case-Shiller index declining 0.8 percent in January, the fifth consecutive month it has fallen. Home prices have tumbled 3.8 percent over the past 12 months. February might prove to be an exception, with initial estimates showing an uptick of 0.3 percent in the price of existing home sales. Such a small increase, especially when accompanied by a decline in sales in almost all the major metro areas in the nation, is not a signal of a sustainable recovery.
The fundamentals remain bleak. A lot of foreclosed homes await legal resolution. Freddie Mac is entangled in litigation, for example, with a number of local governments, about what transfer taxes it is obligated to pay on foreclosed homes. Their intrusion into the market will depress prices further still.
With the economy growing a bare 2 percent this quarter, the economy is rightly described as weak. If inventories are excluded, that rate drops to 1.1 percent. Profits also plunged this quarter, to less than half of the level of last quarter. Gasoline prices have hit record highs and continue climbing, triggering fears of inflation that follow the Federal Reserve's ongoing easy money policy.
There is another, deeper problem with the housing market: ballooning student debt. Young people are graduating from college (or not - graduation rates for four-year colleges are shockingly low) with non-dischargeable debt that is the size of a mortgage. The grand total of student loan debt has reached about $1 trillion. It is pretty hard for young families to buy a house while loaded down with such massive obligation, even if they are lucky enough to be gainfully employed. Locking out the buyers at the entry level of the market makes recovery of the entire housing market that much harder.
Government intervention in the housing market and in the student loan market have converged to drag down the recovery. And thanks to those student loans, the young and comparatively poor won't be able to help get the real estate market back on track.
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