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Housing market comeback gains more traction

According to Gus Faucher, senior economist at PNC Financial Services Group, the housing market is in the early stages of a recovery, which could mean an increase in construction jobs and a boost in job growth this year. 

The National Association of Home Builders is out with its Housing Market Index. Happy homebuilders means construction jobs, plus a ripple effect as money is spent by consumers on new appliances and furniture. And many remain optimistic that the housing market is in the early stages of a recovery.

"We saw housing starts fall by about 75 percent after the great recession, we've seen a modest recovery since then, but there's still room to grow," said Gus Faucher,  senior economist at PNC Financial Services. "We haven't seen much of a gain in construction employment, but as the housing market continues to recover, I do expect construction employment to pick back up, adding to job growth this year."

Faucher also sees room for potential growth in the new inflation numbers out today. "Inflation is under control," says Faucher, which means "the Fed is going to be able to keep [interest] rates low to support the recover." 

Another number to keep your eye on is the one on your weekly paycheck. Part of the fiscal cliff deal was an increase in what comes out of our checks for social security.

"The Social Security payroll tax was raised by 2 percentage points on roughly the first $110,000 of labor income," says Faucher. That means "if you make 50,000 a year, you're going to see your payroll taxes increase by about a $1,000 and that's going to be a hit to consumer spending. People are seeing less in their paychecks this year compared to last year, they're likely to cut back on their spending somewhat, and so that is going to be a drag on the economic growth in the first part of 2013 as people begin to adjust."

About the author

Mark Garrison is a reporter for Marketplace and substitute host for the Marketplace Morning Report, based in New York.
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The numbers are not telling the real story of the housing recovery...there is no sustainable housing recovery going on here. I speak from having last Fall recently completed the painful acquisition of a house in the San Francisco Bay area.

The increase in housing prices is being driven by a limited inventory of available housing and by investors. Was it not 6 or 9 months ago, Marketplace bemoaned the fact that there was 2 to 3 years of housing inventory what with all the Foreclosures and Short Sales. Where is this inventory? It seems to be a safe assumption that the banks are still holding on to it. WHy? Well certainly part of it is being held while they clean up their foreclosure robosigning mess. I have a hard time believing that that is the entire story. The banks have a fiscal interest in seeing housing prices rise...they get more revenue for their bottom line rather than the tax write-offs that they have so been enjoying.

Second part of the equation. There is alot of pent up demand for housing both from homeowners and from investors. The investors are flush with cash. Homeowners don't often have $300K in cash to purchase a house. A bank, not in the business of lending money these days, would much rather accept cash. Myself, as an example, I bid on 5 houses...one I bid $100K over the asking price and lost that bid to an all cash offer. Lost all but four of those bids but was able to secure a townhouse (not really an investment property so wasn't competing against any investors) but there were two other parties waiting to step up if I couldn't come up with the necessary cash. My former roommate, lost 3 or 4 bids in another part of CA, and to add further evidence, an HGTV show featured one new home buyer in LA that bid on 12 homes and finally gave up being unable to secure any property at all.

To secure the townhouse, I had to overbid by 30K just to get my feet in the door. The appraisal came in barely above asking price (remember appraisal's are based on prior purchases and with so few purchases happening the most recent one had been some 10 months old). The seller in a position of strength demanded another 15K in cash.

With the inventory being held by the banks, and what inventory there is being gobbbled up by investors, and home purchasers, not having the cash, there isn't much of a sustainable recovery.

Now we get to the loan application...sooo painful that I almost walked away. Bank asked for Cancelled checks for some payments!!!! And then dragged the process out for several weeks after it was supposedly ready to close.

As I see it, inventory will increase both from the investors completing their projects and the banks trying to increase their revenue stream. The houses will once again be priced out of reach driven up by investors and limited inventory such that the housing market will suffer, if not from another crash, at least another recession.

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