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Economic Insights

Recent reports on mortgage lending, loan spreads, and housing-market sentiment suggest that the current recovery has staying power.

Where does the U.S. housing market stand? To answer that question, we looked at a number of recent data reports covering different aspects of this crucial sector of the U.S. economy. One way to assess the health of the sector is by looking at how many mortgages are being granted for home purchases. For-purchase mortgage activity has languished at a level that suggests the housing recovery has stalled.

But the low level of recent activity could be due to delays caused by the succession of major hurricanes that hit the United States, along with a shortage of inventory of new and existing homes for sale. Both would suggest at least a short-term improvement in housing starts, as the market eventually responds to catch up with demand.

Another important gauge is the relative affordability of houses for prospective buyers. While fixed-rate mortgage rates recently have crept up somewhat, the increase has not been enough to deter a significant number of buyers; housing remains very affordable relative to income. For their part, banks appear to be pricing mortgage loans very attractively relative to funding costs.

This development suggests that lenders are competing more aggressively for business, but that demand is weak. This, in turn, is a good signal for buyers and builders, and it hints that banks are devoting more capital to a business they relied on heavily during the boom years of 2001–07, but shunned after the housing bubble burst.

One final indicator comes from a widely followed sentiment report. The University of Michigan survey reveals that the housing market is healthy overall, but that, in a rare crossover, sellers are increasingly optimistic about trading conditions, while buyers have become less enthusiastic.

If it really is more of a seller’s market than usual, it should soon be reflected in increased supply—more starts of newly built houses and more existing homes listed for sale. Along with the other factors we’ve discussed here, that would be one more indication that the current U.S. housing recovery, while not as strong as past rebounds, has staying power.

 

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