Economy Moves Sideways with Lukewarm Housing Recovery

By Stevie Duffin Updated on 9/25/2013

The U.S. economy is not improving as fast as everyone would like it to, and at best is moving sideways.  Consumer sentiment is down mostly due to historically high, near $5 gasoline prices.  The mild winter stimulated some economic activity but not enough to spur up a strong recovery. During the same time, the housing market continues to display two opposing trends: On one hand, household growth climbed a small 0.6% last year which suggests a pent-up demand which could potentially later translate to home sales. Additionally, affordability for buying homes are at levels witnessed back in pre-1990s home prices.  This obviously gives consumers an incentives to eventually buy homes.

Currently mortgage rates are near all time lows, but if they were to rise, the home buying and refinancing activity could drop. It is likely that slightly higher interest rates will return housing affordability to levels in 2011. Housing starts fell to an annualized rate of 698,000 in February 2012 which was down from 702,000 in the prior month. On the other hand, there has been a recent upswing in home sales. In February, sales increased 11.5% from 2011 levels to 280,100 units. In addition to low mortgage rates, the government has recently launched the new HARP 2 Refinance Program which is supposed to spur up refinancing for homeowners who have underwater property values.