Spencer Platt/Getty Images
A newly constructed home in Westport, Conn., in December. The past three years have been the worst for new housing starts since before record-keeping began, according to economists at IHS Global.
A newly constructed home in Westport, Conn., in December. The past three years have been the worst for new housing starts since before record-keeping began, according to economists at IHS Global. Spencer Platt/Getty Images
When President Obama delivers his annual State of the Union address Tuesday night, the economy will be a top issue — as will the housing market, which is still at the heart of the country's economic problems.
Despite some encouraging signs from investors, housing starts are still low and foreclosure prevention efforts haven't done as much as hoped.
The Federal Reserve said this month that the crash in home prices has cost $7 trillion in household wealth, which has discouraged spending by people and businesses.
On the campaign trail in Florida on Monday, Republican Mitt Romney offered this assessment: "It doesn't have to be like this. It can get better; it will get better."
Romney and his fellow GOP presidential candidates haven't offered many specifics about how housing will get better, or when.
"I can't predict when it's going to get better other than if I'm fortunate enough to become president I will care very deeply about getting it better in a big hurry," Romney said.
'Encouraging' Signs From Investors
But it is at least possible now to take a glass-half-full view of things. Mark Zandi, chief economist at Moody's Analytics, has been tracking the housing market closely and advising policymakers in Washington.
"The six-year-long housing crash is coming to an end," Zandi says. "It's not quite over. I think we've got a bit more to go with respect to house price declines. But for the first time since late 2005-06, I think the trend lines look actually quite good for housing."
Zandi says the pace of home sales is picking up. But that does not mean that lots of average Americans are jumping back in, getting loans, buying houses and brimming with confidence. Many of those sales are actually investors using cash to buy foreclosed properties. That might not sound so good, but Zandi likes to see that.
The number of new homes under construction dropped off drastically in recent years. It's likely to be two or three years before the housing market starts to look healthy again, analysts say.
"Investors are probably about a third of the existing home market right now — a very important part of the market, which is very encouraging. They sense value," he says.
Zandi says prices have fallen enough that investors can come in, buy the properties, rent them, cover their costs and hold on. "These aren't flippers," he says. "They're looking out three, five years."
Low Numbers For Home Construction
Still, it's likely to be two or three years before housing starts to look really healthy again. For now, we're still at the bottom of the cliff. And from that perspective, things are so bad that housing economists Patrick Newport and Erik Johnson with IHS Global Insight felt the need to title a recent report in Latin.
"For the housing sector, 2011 turned out to be an 'Annus Horribilis' — just a horrible year for housing," Newport says.
If you look at home construction, the numbers are striking. Newport and Johnson say the past three years have been the worst since before record-keeping began, to the lowest level since World War II.
And that's not adjusted for population, so home construction is at a more than 60-year low. That translates into a lot of unemployed or underemployed construction workers.
"It's not only that the numbers are low nationally, but they're bad just about everywhere in every state of the country," says Newport.
'Remarkably Little' Foreclosure Progress
One problem is that millions of foreclosed homes keep glutting the market. Meanwhile, foreclosure prevention efforts have been very tangled up.
"I think unfortunately we've seen remarkably little progress [from] where we were a year ago," says Neil Barofsky, who had served as the special inspector general overseeing the so-called TARP program in Washington.
President Obama's foreclosure prevention plan is called HAMP. It was supposed to help 3 million to 4 million homeowners, but so far it's reached fewer than 1 million. And it seems to be slowing down.
"If anything the HAMP program has gone from an anemic program to one that is even more mediocre than it was just a few months ago," Barofsky says.
He blames the banks, and he also blames the Obama administration for not pushing the banks harder.
Still, some economists hold out hope for some new efforts to help housing. One we might see in the next year aims to take foreclosed homes and convert them into rental properties on a large scale.