An end to the housing market’s troubles? Not yet

An end to the housing market’s troubles? Not yet

New data on housing starts provide the best indication to date that homebuilding activity, at least for the single-family side of the equation, likely bottomed out at the beginning of this year. This marks a dramatic improvement from the veritable free-fall in construction activity recorded over the past three years; however, observers should not get too excited since it does not constitute the beginning of some big rebound in the housing market. Mortgage loan defaults and foreclosures continue to set records nearly every month and will likely climb higher for some time since the U.S. labor market will remain incredibly weak into at least 2010. With higher unemployment putting more homeowners at risk of default, new foreclosures and distressed sales will keep home inventories stubbornly high and constrain any potential rebound in construction activity.

Why the fixation on housing? Well, residential investment is typically one of the first sectors to lead the economy into and out of recession. Since most signs point to a weak recovery for the housing market, it becomes difficult to make an optimistic prognosis on the broader economy's prospects for recovery.

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