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LAMBRO: Recovery summer on the horizon, or another mirage?
Homeowners move out even as house prices creep up
Question of the Day
Over the long, hard course of President Obama’s painfully slow, job-scarce, subpar economy, he may have set a record for persistent media reports that his shaky recovery was finally showing signs of strength.
This week, the president’s economic cheerleading squad was back on the field again, applauding new data showing housing prices hitting the highest level in five years, rising consumer confidence and a bullish stock market rally that pushed the Dow Jones industrial average to record highs.
Once again, the news media’s euphoria was splashed across the front pages of the nation’s newspapers and led the TV nightly news shows. Surely this really was a turning point for the economy, they said. This time, it has turned the corner for good, and there’s no turning back.
The liberal Washington Post, which had cheered so many previous signs of an economic comeback only to see their expectations crumble in a wave to weak economic reports, could hardly contain its glee:
“A U.S. economy that was supposed to be barely hanging on is starting to look surprisingly robust,” the newspaper gushed in its front page lead story Wednesday.
It may be true this time, but we’ve heard this fairy tale so many times before, only to see an overregulated, overtaxed, big-spending, deficit-ridden Obama economy turn back into a pumpkin of frightening statistics: anemic job creation, slower economic growth, stagnant wages, weak capital investment, a shrinking labor force, high gas prices and a health care law that threatens to kill small-business job creation.
In Mr. Obama’s first term, we heard Vice President Joseph R. Biden proclaim in 2010 that this was going to be “the summer of recovery,” only to see economic growth sag, the jobless rate worsen, poverty rates rise and 1 million Americans lose their homes.
The president, proudly pointing to monthly job-creation numbers (no matter how weak the job numbers were), told us in 2012 that “we’re making progress” and the economy is coming back.
More than 24 million Americans were unemployed, underemployed at the beginning of last year or had given up looking for work, pushing the real jobless rate to nearly 15 percent.
By the end of 2012, the economy was barely growing by 0.4 percent in the fourth quarter. It crept up to around 2.5 percent in the first three months of this year, but some economists were forecasting slower growth from April through June.
There are reasons to question the economic impact of the latest rise in home prices as measured by the S&P/Case Shiller home-price index.
The Wall Street Journal warns that the Case-Shiller index “can sometimes overstate the magnitude of price increases because it includes foreclosures.”
The index data released Tuesday showed home-sale prices climbing 10.2 percent in March from a year earlier. However, another index by Lender Processing Services Inc. found that prices rose over the same period by 7.6 percent.
To be sure, record-low mortgage rates are bringing out a lot of homebuyers, increasing home sales and boosting prices. A large proportion of these purchases, though, are from well-capitalized real estate investors who picked up relatively inexpensive properties to rent until home values rose because of growing demand.
This suggests that rising home sales do not reflect a truly large base of ordinary homebuyers, some of whom now own homes that are underwater and have little or no equity to use for another down payment on a new home.
Even with the rising home prices in the first quarter, 44 percent of American homeowners were holding mortgages that were greater than their home was worth, according to the Negative Equity Report published by Zillow, the widely read real estate website.
Their report showed that 25.4 percent of homeowners were entirely underwater, and that an additional 18.2 percent were “effectively” underwater because their equity would not produce 20 percent down payment for another home.
Then there is the “bubble” factor. Home prices are rising from rock-bottom levels after the crushing housing debacle in 2008. Left out of most euphoric home-sales reports is the fact that home prices were still well below their 2006 highs by at least 28 percent.
Missing from all the hype about rising home purchases is this stunning factor: U.S. homeownership is at its lowest rate in years and is shrinking.
“An estimated 91,000 U.S. homeowners became renters since the start of 2012, a decrease that pushed America’s homeownership rate to its lowest level in 18 years, a U.S. Census report shows,” according to the Real Estate Blog website.
“Sixty-five percent of Americans owned their homes during the first quarter, compared to 69.2 percent in 2004,” the blog reports.
In other words, the U.S. housing industry still has a long way to go before it will have a significant growth impact in a $17 trillion economy.
Still, home sales are rising, although there will be ups and downs in their overall numbers in the months to come. Whether the upward rise in sales and prices continues remains to be seen. There are still many obstacles ahead in the Obama economy that can undermine future home sales.
Federal Reserve Chairman Ben S. Bernanke has been suggesting lately that the Fed may begin raising its near-zero interest rates, pushing mortgage rates beyond the reach of many Americans.
High unemployment still looms over the economy at 7.5 percent, and the latest mediocre jobs figures suggest we are not going to see major changes on that front anytime soon.
The Obama economy produced only 165,000 jobs in April, far below what is needed to bring the jobless rate down to more normal levels in the next several years.
It’s a little premature to be popping champagne corks on the basis of rising home prices. This is an economy that is still in recovery.
Donald Lambro is a syndicated columnist and contributor to The Washington Times.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
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