Bust To Boom: Why Housing Matters, Economically
The economy has peppered political speeches for much of the presidential campaign. But talk of creating jobs has stolen thunder from the housing market.
The epic housing collapse four years ago was a key ingredient in creating the Great Recession in the first place. Plus, boosting the housing market can be a boon for overall economic recovery.
Beginning A 'Long-Term Cycle'
Derek Thompson, senior editor at The Atlantic, follows the housing market. He says housing is a major driver of the overall economy because it impacts multiple sectors. When you buy a home, for example, you also buy things to put in it. When companies notice that kind of activity, they respond, he says.
That knock-on effect is boosting stocks at Home Depot and Lowe's; they're trading at their highest prices in a decade. That, in turn, lures investors.
Brian Peery of the California investment firm Hennessy Funds says he's hopeful.
"I think we're actually just beginning a long-term cycle here," he says. "I think if you look at the home builders and the construction companies themselves, they're not quite optimistic yet, but they've certainly become less pessimistic."
Denver real estate agent Victoria McCaskill, meanwhile, certainly is optimistic.
"What we're seeing now is low inventory ... lots of buyers in the marketplace, rents are up" she says, "and we're seeing a situation where it's almost difficult to find a home as a buyer. It's a multiple-bid situation in a lot of instances."
Still, a number of false starts in the economy over the past few years have fallen flat. This time, according to Thompson, the growth is real — if halting.
The Recovery We've Been Waiting For
In the 1970s and '80s, Thompson says, housing and cars were major drivers in recovering from recession. They accounted for 50 percent of the recovery in the '70s and one-third of the recovery in the 1980s.
"And today, they're accounting for only about 10 percent of the recovery," Thompson says. "So we're missing this huge, important engine of economic growth."
He says there are a couple indicators to look for when assessing the housing market: Is housing being built and what kind?
"One of the reasons why this recovery has been so disappointing is because we overbuilt in what's called single-family houses," Thompson says.
But we've been lacking apartment complexes. He says that's starting to change. One of the driving forces in apartment construction is a nascent trend of young people moving out of their parents' homes. Rather than jumping into home buying, they're looking for apartments.
"Hopefully, once we see enough of these apartment buildings being built, we'll sort of hit a ceiling in the apartment sector, and then you'll see people starting to move out of apartments and into houses," Thompson says. "And then you'll really have the housing recovery that we're all waiting for."
Recovery is uneven, but in states that have been hit the hardest — Michigan, California, Florida, Arizona and Nevada — there are hopeful signs.
"As you look across the country, not everything is improving or declining at the same rate," he says. "But you know what? That looks less like a recession and more just like a regular economy."
Still, many homeowners are struggling with foreclosure and renegotiating their mortgages. With the presidential candidates relatively silent on the issue, Thompson says, voters are left wishing.
"Right now I think there [are] a lot of people who are sort of waiting and hoping that if Romney is elected, if Obama is elected, that they'll have a kind of secret plan to replace the current strategy with proactive policies that say ... 'We understand how important housing is to a recovering economy, and we're going to make sure that 2013 doesn't look like 2009 through 2012,' " he says.
As Americans await the election, there are still things holding buyers and investors back — whether the mortgage deduction will still remain, for example, or the impact of problems abroad. Thompson says Congress could be another tripwire.
"Right now, the U.S. economy is recovering — the private sector, at least — at a decent pace. What would really hold us back is that this do-nothing Congress does nothing again and lets the fiscal cliff happen," he says.
Thompson points to a Congressional Budget Office report that says the fiscal cliff would cut the average family's disposable income by about $2,000.
"So housing is a risk. You're always taking a risk when you make an investment," he says. "And the question is: Are you more likely to take that risk when you know you're going to have a $2,000 hit the next year? I would say no. So the economy is doing OK, but Congress could still really screw it up."
JACKI LYDEN, HOST:
It's WEEKENDS on ALL THINGS CONSIDERED from NPR News. I'm Jacki Lyden. Guy Raz is away.
Four years ago, an epic collapse in the housing market dominated the headlines.
(SOUNDBITE OF NEWS REPORTS)
UNIDENTIFIED MAN #1: Last month alone, more than 70,000 families lost their homes.
UNIDENTIFIED MAN #2: ...joining a growing list of Americans caught up in the housing crisis.
UNIDENTIFIED MAN #1: Foreclosures jumped a staggering 158 percent.
UNIDENTIFIED WOMAN #1: (Unintelligible) house price index record its first year-over-year decline...
UNIDENTIFIED MAN #3: Two hundred and twenty thousand homes were lost to bank repossessions in the second quarter. That's a lot of families.
LYDEN: At that time, nearly 11 million homes held more debt than value. Put together, that's just about the population of Ohio. So what to make of the trend now? Home prices are rising, mortgage rates are dropping, and the classic - the 30-year fixed rate mortgage - is at its lowest point since 1971. Our cover story today: the housing recovery - maybe this time, it's real.
When housing does well, it's the economic engine that pulls everything else behind it - more than manufacturing or autos. And here's why.
DEREK THOMPSON: When you think about, all right, if I'm moving into apartment, what do I do? Maybe I want a new television. And, ooh, that's a nice couch that that person has on Craigslist. He's replacing it with another couch. I'll get that couch. So it's not just about buying space. It's about buying things to fill that space with. This helps to explain why, when a housing unit is purchased or rented, it usually presages a lot more economic activity to come. And then other companies see that economic activity and they respond to it.
LYDEN: That's Derek Thompson, a senior editor at The Atlantic magazine who follows the housing market. That knock-on effect he's talking about is boosting stocks like Home Depot's and Lowe's. They're trading at their highest prices in a decade, and that's luring investors.
BRIAN PEERY: For instance, La-Z-Boy is seeing its growth of about 8 percent. You know, when you get an economy that's growing at only 2 percent, those are the companies that we really like to own that are doing better than the overall economy.
LYDEN: That's Brian Peery of the California investment firm, the Hennessy Funds. He's optimistic.
PEERY: I think we're actually just beginning a long-term cycle here. I think if you look at the home builders and the construction companies themselves, they're not quite optimistic yet, but they've certainly become less pessimistic.
LYDEN: Are real estate agents more optimistic? Victoria McCaskill certainly is. She sells homes in Denver.
VICTORIA MCCASKILL: What we're seeing now is low inventory. We're seeing lots of buyers in the marketplace. Rents are up, and we're seeing a situation where it's almost difficult to find a home as a buyer. It's a multiple bid situation in a lot of instances.
LYDEN: So less pessimism, more optimism. Still, a number of false starts in the economy over the past few years have fallen flat. This time, according to Derek Thompson, the growth is real, if halting.
THOMPSON: If you look back over the last 30, 40 years, the thing that has really gotten the economy out of the dumps is big-ticket items. And the two most important are housing and cars. In the early 1970s and in the mid-1970s, the recession that we had was cured by a recovery that was led by cars.
Cars and houses accounted for 50 percent of the recovery in the 1970s. They accounted for a third of the recovery in the 1980s. And today, they're accounting for only about 10 percent of the recovery. So we're missing this huge important engine of economic growth.
LYDEN: So there are a number of indicators that economists are pointing us to as proof that the housing market recovery is kind of gaining steam. There's home prices. There's housing starts. There's many more. Which one should we be focusing on?
THOMPSON: You want to look at, are houses being built? What kind of houses are those? And so what you're looking for there are permits - those say, all right, construction can begin here - and housing starts - that's where construction breaks ground. Because one of the reasons why this recovery has been so disappointing is because we overbuilt in what's called single-family houses. Those are the houses, you know, with the picket fence. We didn't have as many multifamily homes, which is sort of a fancy term for what, I think, the average person would just call an apartment complex.
So right now, what you see is you've seen an uptick in apartment building. And this is really important because what you've also seen over the last few years is a lot of young people living with their parents. But it seems like they might, just now, be starting to move out of their parents' basements and they're not going to take, you know, their ratty sweatpants stuffed with $10,000 and put a down payment on a huge home. They're going to first move into apartments.
And so hopefully, once we see enough of these apartment buildings being built, we'll sort of hit a ceiling in the apartment sector, and then you'll see people starting to move out of apartments and into houses. And then you'll really have the housing recovery that we're all waiting for.
LYDEN: So if the housing boom is a jobs creator, where are the booms the strongest? In what states and cities?
THOMPSON: So for a long time in the recession, we had a term at The Atlantic we called MICHACALAFLARAVADA - Michigan, California, Florida, Arizona and Nevada. And these were - if the housing crunch was an earthquake, these were the epicenters. And right now in a lot of these cities, you're starting to see some real activity coming back.
But really, as you look across the country, not everything is improving or declining at the same rate. But you know what, that looks less like a recession and more like just a regular economy.
LYDEN: We shouldn't forget, though, of course, that there are still thousands of homeowners struggling with foreclosure and struggling to repay mortgages and get them renegotiated.
THOMPSON: Absolutely. Right. At some point in this recession, one out of every five homeowners was underwater, owed more on their house than the house was worth. And so, you know, right now, I think there's a lot of people who are sort of waiting and hoping that if Romney is elected, if Obama is elected, that they'll have a kind of secret plan to replace the current strategy with proactive policies and say, we're going to make it easier for people to live. We understand how important housing is to a recovering economy. And we're going to make sure that 2013 doesn't look like 2009 through 2012.
LYDEN: But although the economy is the focus of this presidential race, jobs have gotten the attention. Housing hasn't come up.
PRESIDENT BARACK OBAMA: The auto industry supports one in eight Ohio jobs.
UNIDENTIFIED WOMAN #2: That's right.
OBAMA: It's a source of pride to this state.
UNIDENTIFIED WOMAN #2: That's right.
OBAMA: It's a source of pride for generations of workers. I refused to walk away from those workers.
MITT ROMNEY: I want to champion small business. I want to make it easier for small businesses to grow and thrive. That means I want to keep the taxes down on business. I want our tax rates to be competitive with other nations. I want regulators to see their job as encouraging business, not attacking business, because I want more jobs. My priority is jobs, jobs, jobs. And we're going to get them here in Ohio.
(SOUNDBITE OF CHEERING)
LYDEN: That's President Obama and Governor Romney sparring over jobs in swing state Ohio this week. Now, the auto industry recovery has created about 250,000 jobs, but there are one million real estate agents in this country. So given that housing is so huge, why aren't the candidates talking more about it, especially to those Americans still in crisis?
We put the question to Bill Faith. He's the executive director of the non-profit Coalition on Homelessness and Housing in Ohio.
BILL FAITH: You know, it perplexes me that it didn't come up in any of the debates when the collapse of the housing market was a large part of the reason we had the great recession to start with. So you would think we'd all want to stabilize the housing market faster. We'd want to see the housing market grow faster. And yet we've heard almost nothing from, you know, really either side.
LYDEN: So home prices are rising in many parts of the country, Bill. Contractors building new homes. And the big picture shows a national housing recovery, although a slow one. Why don't you describe the housing market for us in Columbus?
FAITH: You got to remember Ohio had 12 years of record levels of foreclosures before the recession even hit, but it has started to stabilize. In fact, the foreclosure numbers have declined in our market here in Columbus the last couple years, but there's still 30 percent of Ohioans that are underwater in their mortgage.
You know, a two-bedroom apartment is still out of reach for many low-wage workers. I mean, people on minimum wage, people who are disabled. You have to have basically two full-time minimum wage jobs to afford the fair market rent on apartments. So we still have many people that are struggling to meet their housing costs.
LYDEN: Do you see a clear choice, Bill Faith, in housing plans between the candidates?
FAITH: You know, we've been disappointed in some of what the president did and some of what he didn't do when it came to housing, but they did try a number of things, and some of that paid off. You know, we did see a number of foreclosures get prevented because of some of the policies the Obama administration promoted. We haven't been totally satisfied by any means, but at least there's something there.
On Governor Romney's side, he's more of a guy who talks about let the market play out. The other thing that Governor Romney has said to give us some idea of where he might go is when it comes to helping the lowest income people, those that are most vulnerable. He's talked about eliminating the very agency that works on those issues, and that's the Department of Housing and Urban Development. And I think no matter where people are at on this, housing is very important to us, and it's worthy of presidential attention.
LYDEN: Bill Faith of the Coalition on Homelessness and Housing in Ohio. As Americans await the election, there are still things holding buyers and investors back - whether the mortgage deduction will remain, for example. And Derek Thompson cautions there are still a couple of other trip wires out there.
THOMPSON: So, number one, I would say there's fear about what's happening in the rest of the world that sort of impacts the decisions that households and companies make in terms of buying new homes, getting new apartments or building new homes and new apartment buildings. The second thing I would look at is Congress.
Right now, the U.S. economy is recovering - the private sector at least - at a decent pace. What could really hold us back is that this do-nothing Congress does nothing again and lets the fiscal cliff happen. Actually, there was a CBO report that looked at, all right, if the fiscal cliff happens, how bad is a typical family going to feel it? And they said we think the typical family is going to see $2,000 less in disposable income. So housing is a risk.
You're always taking a risk when you're making an investment. And the question is, are you more likely to take that risk when you know you're going to have a $2,000 hit next year? I would say no. So the economy is doing OK, but Congress could still really screw it up.
LYDEN: Derek Thompson is a senior editor at The Atlantic. Derek Thompson, thank you.
THOMPSON: Thank you. Transcript provided by NPR, Copyright NPR.