Housing prices rose 2.9 percent from the first quarter to the second – the first quarterly increase in three years, Standard & Poor’s reported Tuesday. Meanwhile, a business group announced Tuesday that amid signs of economic improvement, consumer confidence rebounded this month.
The S&P/Case-Shiller Home Price Index and the Conference Board’s consumer confidence index were the latest reports to suggest that the U.S. economy is staggering toward recovery. The progress is agonizing, and many ordinary people won’t see the payoff for a while.
The Congressional Budget Office expects unemployment to rise from July’s 9.4 percent and average double digits next year.
Long climb ahead
Even so, the economy is a long, long way from a full recovery. The Congressional Budget Office predicts economic output will fall 1 percent this year and unemployment will average 10.2 percent in 2010. Housing prices are still down 30 percent from their 2006 peak, household incomes are shrinking, employers are still cutting jobs and consumer confidence is struggling back from rock-bottom levels.
Unemployment fell unexpectedly last month, though partly because many discouraged workers stopped looking for jobs.
Industrial production rose in July for the first time in nine months.
Home prices rose in 18 of the 20 cities tracked by the S&P/Case-Shiller index from May to June. Month-to-month comparisons can be unreliable and overall prices are about where they were in early 2003. Still, “The numbers are telling us prices may have already hit bottom,” says Patrick Newport, economist at IHS Global Insight.
That helps by producing:
• More consumer spending. Rising home prices give homeowners more confidence to spend. They tend to tighten their belts if they owe the bank more than their house is worth.
• More buyers moving into the housing market. Rising prices may nudge more potential homebuyers off the fence.
• Fewer toxic assets on the books for banks. Rising home prices are an elixir for banks stricken with questionable mortgage loans and foreclosed property. “It improves the balance sheet of the bank. That will hasten the end of the credit crunch,” says Joel Naroff, of Naroff Economic Advisors. “Do I think it will happen very fast? No.”
Worries about winter
Moody’s expects the housing market to be depressed this winter when banks auction off foreclosed property. Lenders have delayed the sales, while trying to figure out how to qualify for a government program to modify troubled mortgages; eventually, the foreclosures will continue.
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