Sign in
Become a MarketWatch member today
Kathleen Madigan
Jan. 20, 2011, 12:01 a.m. EST
View all Kathleen Madigan "º
"¹ Previous Column
Bad weather batters fragile economy
First Take "º
A contrarian take on gold's big drop
By Kathleen Madigan of Dow Jones Newswires
NEW YORK (MarketWatch) "” Housing may no longer be in the basement, but it is barely crawling up the cellar steps.
December saw housing starts slip a greater-than-expected 4.3% to an annual rate of 529,000. Over the past two years, starts have been averaging below a 600,000 pace "” well below the mark of nearly 2 million hit regularly during the housing boom. Read "Home building remains very depressed."
The collapse in housing "” along with the attendant mortgage crisis "” was the main trigger for the U.S. recession. Residential construction has subtracted from gross-domestic-product growth for 12 of the past 14 quarters.
In a preview of Friday's "Big Interview," Dr. Henry Kissinger discusses China's emergence as a world power and what it implies for the U.S. economy, while stating that much of the U.S. economy's problems are homegrown.
The federal government tried to help by instituting two home-buyer tax-credit programs. Those lifted sales temporarily. In addition, the Federal Reserve has been buying up mortgages in an effort to keep interest rates ultra-cheap. That worked for a while, but the 30-year mortgage rate is about half a percentage point higher than it was in October.
With no new federal help expected, housing now must sink or swim on its own. The outlook will depend greatly on better job and wage growth. Stronger labor markets would allow more families to afford a home and boost household formation as young adults find jobs and go out on their own.
Any improvement this year will be small. Home builders are in a deep hole. New construction is competing with cheaper, foreclosed homes, some of which are not very old.
Millions of homeowners are defaulting on their loans because of unemployment or mortgage adjustments that made monthly payments unaffordable. An unknown number is choosing to walk away from a mortgage worth more than the house is.
Foreclosure-tracking firm RealtyTrac said last week that foreclosure filings "” default notices, scheduled auctions and bank repossessions "” were issued for a record 2.87 million U.S. properties in 2010. RealtyTrac said the number would have been even higher if not for the lull in activity after questions were raised about the legitimacy of bank-foreclosure documents.
These foreclosures, along with short sales and people needing to move, have created a huge overhang of already-built homes available for sale.
No wonder new construction has fallen like a rock, and why builders are in a sour mood. The National Association of Home Builders reported Tuesday that its housing-market index "” a gauge of builder sentiment "” remained at a low reading of 16 this month. During the boom, the index stood in the 60s and 70s.
Moreover, don't read too much good news into the 16.7% jump in permits. The Census Bureau said the increase may reflect builders taking out permits before new building codes went into effect in California, Pennsylvania and New York in January 2011. If that's the case, expect permits to plunge this month.
The 2011 U.S. economy has much going for it: a rising stock market, fiscal stimulus and businesses finally investing in new equipment. But housing won't bring much to the party.
is the primary author of the Big Picture column. This column originally appeared on Dow Jones Newswires.
Despite the air pockets that gold has hit in recent sessions, including a $26 drop today alone, bullion is not that far below its early-December peak. And, yet, the gold market timers are acting a lot more depressed than this modest a loss would justify. Contrarians think this is significant.
11:41 a.m. Today11:41 a.m. Jan. 20, 2011
"China-related exchange-traded funds hit by tightening fears http://on.mktw.net/dWp2N2" 2:54 p.m. EST, Jan. 20, 2011 from MarketWatch
"Has Apple already lost the Jobs Premium? http://bit.ly/g40GCr" 2:03 p.m. EST, Jan. 20, 2011 from MarketWatch
"#Facebook numbers draw #Google comparison http://bit.ly/fNvxEx" 1:34 p.m. EST, Jan. 20, 2011 from MarketWatch
"Warren Buffett to leave Washington Post Co. board http://on.mktw.net/h4Z1jl" 1:08 p.m. EST, Jan. 20, 2011 from MarketWatch
"#Gold at two-month low after data help #dollar http://bit.ly/gm9ddk" 12:53 p.m. EST, Jan. 20, 2011 from MarketWatch
On Retirement
Raise your Social Security benefits
The Big Picture
Housing sector: Time to sink or swim
This Week in Japan
Rite of spring, or harbinger of winter
Wall Street Irregulars
Stoic bull ignores sentiment
ROI
The great Apple scam of 2011
Strength in Numbers
How Obama fueled a Wall Street boom
Read Full Article »