Residential Sector Delivers Positive News

The latest numbers on housing starts, new home sales and rising prices indicate that the residential recovery is for real.  Because the housing crash was a primary cause of the Great Recession, word that the sector is rebounding is good news.  Housing permits and starts have increased in the last several months, and new house sales increased in March.

Even though the Case-Shiller home price index showed mixed numbers for January and February, there was better news found in a recent government report on the producer price index for single-family residential construction through March.  This measure of the average change in the cost of materials for new home construction has risen three percent since last summer.  Economists are interested in the producer price index because it is a critical factor in the pricing of existing homes.  Inflation hawks may claim that this statistic is a portent of rising prices in the general economy.

According to Casey B. Mulligan, an economist at the University of Chicago, a little inflation is not a bad thing for housing.  “It’s quite possible that inflation-adjusted housing prices will not significantly increase, but even if a housing price increase resulted merely from general inflation, it would be welcome because anything that raises housing prices can help alleviate the extraordinary prevalence of foreclosures that derives largely from the fact that debt-strapped homeowners can no longer sell their homes for enough to cover their mortgage,” Mulligan said.