Housing Revival Is Built on Real Jobs Growth


Link: http://online.wsj.com/article/SB10001424052748703280004575309122356171904.html?mod=WSJ_RealEstate_LeftTopNews

Original Post Date: June 16, 2010

By David Reilly

The latest dose of government-administered adrenalin has worn off, and the housing market is again flagging.

The end of April marked the expiration, for contract-signing purposes, of the government’s home-buyer tax credit. The hope was that this program, originally slated to end last fall, would add oomph to home sales, particularly during the spring season.

This momentum would then help lift the market through the rest of the year. That doesn’t seem to be working. The National Association of Home Builders on Tuesday said its confidence index fell sharply in June, to 17 from 22, as builders’ pessimism grew.

On Wednesday, the Census Bureau reports May housing starts. Credit Suisse expects an annualized pace of 575,000 units, a 14% decline from April. The Mortgage Bankers Association, meanwhile, is likely to report that activity for purchase loans remains downbeat. These loans, as measured by the mortgage purchase applications index, have fallen 42% since April.

This bodes ill for investors expecting housing to revive further in the second half of 2010. Instead, it suggests the market will merely trudge along, dogged by still-high foreclosure and inventory levels.

While that is better than sharp declines, it is disheartening given how much support the government has provided to housing. Besides the tax break, the government has propped up banks, troubled homeowners and mortgage giants Fannie Mae and Freddie Mac. The Federal Reserve, for its part, has kept short-term rates near zero, while its purchases of $1.25 trillion in mortgage-backed securities engineered decades-low lending rates.

So what is the real housing antidote? The creation of permanent, private-sector jobs. But that isn’t what the economy has delivered this year. Of nearly a million jobs created in 2010, more than half have been Census spots. And in May, a paltry private-sector employment gain of 41,000 included the creation of 31,000 temporary jobs.

These short-term spots, analysts at CreditSights said in a report last week, don’t “provide the security necessary to take on large purchases, such as a home, or even foster a greater chance of being approved on loan applications.”

So while the government has been able to stabilize housing, anything short of real jobs growth won’t allow the market to thrive.