Housing Won't Support Economic Recovery

Shiller, Case and Blitzer

Thursday, 23 May 2013 10:57 AM

By Michael Kling

Don't rely on housing to support a strong economic recovery, according to three housing market experts.

Many believe a housing market rebound will lead the way to an economic recovery despite government spending cuts, tax increases and an ongoing economic malaise in Europe.

But Yale University economist Robert Shiller, Wellesley Collage economics professor Karl Case and David Blitzer, managing director of Standard & Poor's Index Committee, doubt that scenario.

New housing starts are low, shadow inventory is moving onto the market only slowly and potential homebuyers continue to have a hard time obtaining mortgage approvals, they explained.

"All this talk that we're in this great recovery — we probably are in the short run, the longer run doesn't look so terrific to me," Shiller, who created the S&P/Case-Shiller housing index with Case, told CNBC.

"People are worried about housing as a risky asset," Blitzer added. "All the things that looked like they were going to snap back aren't snapping back, but some of them are."

New housing starts dropped 16.5 percent to 853,000 in April. Building permits were up, but housing starts are more important for increasing gross domestic product (GDP) than are building permits, which don't entail actual building, or sales, which represent wealth transfers as opposed to wealth creation, according to Case.

"You build a house, you're adding $300,000 to the capital stock," Case explained. "That's a lot of GDP just in the direct effect of housing starts. It's been the perfect instrument of housing policy."

The number of houses on the market is low, partly because foreclosures are moving more slowly than expected.

"We thought the shadow inventory would be pouring on the matter as trends changed," Case noted. "That never happened."

Existing home sales rose in April, but are not meeting demand because of limited inventory and tight credit, according to the National Association of Realtors (NAR).

Existing-home sales increased 0.6 percent in April, to 4.97 million from 4.94 million in March.

Lawrence Yun, NAR chief economist, believes housing is solidly recovering.

"The robust housing market recovery is occurring in spite of tight access to credit and limited inventory," Yun stated in a press release.

"Without these frictions, existing-home sales easily would be well above the 5-million unit pace. Buyer traffic is 31 percent stronger than a year ago, but sales are running only about 10 percent higher. It's become quite clear that the only way to tame price growth to a manageable, healthy pace is higher levels of new home construction."

Editor's Note: Make 2013 the Year You Pay Zero Taxes

http://www.moneynews.com/Economy/Shiller-Case-housing-recovery/2013/05/23/id/506048