US housing market recovering

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The US housing market is starting to recover and home prices will see modest growth this year and next, according to a Reuters poll, which a l so suggested the property market would get little boost from any Fed buying of mortgage-backed debt.

Recently there have been signs the housing sector is improving, and many economists think home building will add to economic growth this year for the first time since 2005.

Indeed, 35 of 38 economists polled in the past week said the market was recovering.

But the pace of recovery is still painfully slow. Analysts think house prices in the United States, as measured by the S&P/Case Shiller composite index of 20 metropolitan areas, will rise just 1 percent this year, according to the median forecast in the Reuters poll.

That is an increase from a forecast of flat prices in a poll carried out in July, but still unlikely to keep up with inflation. Consumer prices are expected to rise 2 percent this year and in 2013.

“We still have years to go for a full recovery,” said Scott Brown, an economist at Raymond James in St. Petersburg, Florida.

The poll forecast house prices would rise 2.5 percent next year, up from a projection of 1.8 percent in the July poll.

Hiring in the United States slowed in August, a report last week showed, boosting expectations the Fed could launch a third bond-buying program at a two-day policy review that ends on Thursday.

Many Fed watchers think another round of quantitative monetary easing, already dubbed “QE3,” would probably involve purchases of mortgage-backed securities (MBS), which could lower interest rates on new US mortgages.

But 21 of 34 economists polled by Reuters think Fed purchases of MBS would not give a substantial boost to the housing market.

The reason, say the doubters, is that tighter lending requirements are holding back home buying. The cost of credit might be playing a more minor role.

“Further lowering the cost is unlikely to have a material benefit,” said Paul Diggie, an economist at Capital Economics in London.

The Fed has already made about $2.3 trillion in Treasury and mortgage-backed bond purchases since the height of the financial crisis in 2008, and the bulk of the purchases have been of housing-related debt.

Historically, the housing sector has helped lead the US economy out of recessions. But a mountain of debt accumulated during the country's recent housing bubble, coupled with a deep slide in home prices, has hamstrung the housing market. Also, a wave of defaults during the bust has damaged homeowners' credit.

WEAK LABOR MARKET

The Fed thinks its bond purchases have helped support the recovery from the 2007-2009 recession.

Fed Chairman Ben Bernanke laid out a detailed defense of large-scale asset purchases in his remarks in Jackson Hole, Wyoming, in August. He said the Fed would deploy them again if the economy warranted.

Lately the economy has looked wobbly. The unemployment rate has been above 8 percent since February 2009, keeping many young workers from even trying to buy homes.

“Without a substantial improvement in the labor market the housing market will continue to struggle,” said Sean Snaith, an economist at the University of Central Florida in Orlando, Florida.

The annualized pace of existing home sales is seen to be weak at 4.55 million in the third quarter of this year and 4.7 million in the fourth. That is well below levels seen even before the US housing bubble really got going in 2003, and is more in line with the pace of sales clocked around 1997.

Economists forecast the average 30-year mortgage rate would be 3.72 percent this year. - Reuters