May 23, 2013 at 11:26 AM ET
Housing is going to propel the economic recovery, or so many experts have said. Some of them are warning, however, that the enthusiasm should be curbed despite all the upbeat data recently.
Robert Shiller, Karl Case and David Blitzer -- leading experts in the housing market -- believe several headwinds will keep a lid on housing gains, such as a low level of new home starts, an unexpectedly slow migration of so-called shadow inventory onto the market, and difficulty for buyers to secure financing.
"You've got a lot of breathless commentary in the media," Yale University economist Shiller said. He later added, "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."
Those who keep close track of the ins and outs of the housing market know the names of Case and Shiller for the monthly home price index they release along with Standard & Poor's. Their most recent report showed a 9.3 percent price gain.
Blitzer is managing director of S&P's Index Committee and helps analyze the data as it comes through.
They spoke this week at a roundtable discussion with select media regarding their views of the housing market. Many Wall Street economists have cited the industry as the linchpin for economic recovery expectations.
Their reason? Indicators such as existing home sales, which have hit a three-year high and are up 9.7 percent over the past year.
And on Thursday, the Commerce Department showed sales of new homes rose in April to the second highest level since the summer of 2008 while the median price for a new home hit a record high. New home sales rose to a seasonally adjusted annual rate of 454,000 in April, up 2.3 percent from March and just below January's 458,000. Both January and April had the fastest sales rates since July 2008.
The median price of a home sold in April was $271,600, the highest level on government records going back to 1993. The April price was 8.3 percent higher than in March and 13.1 percent higher than a year ago, the figures showed.
But despite the upbeat sales figures, the experts still see some fundamental weaknesses in the industry.
"People are worried about housing as a risky asset," Blitzer said. "All the things that looked like they were going to snap back aren't snapping back, but some of them are."
One of the areas that took a recent downturn was new housing starts, which plunged 16.5 percent to 853,000 in April.
Though permits surged to a nearly six-year high of 1.017 million, Case said starts is the more important metric.
Gross domestic product, which was a below-consensus 2.5 percent in the first quarter, gets a much bigger boost from starts, which represent fresh capital, than sales, which represent primarily a transfer of property. Permits, he said, are an unreliable gauge as they do not represent actual building.
"You build a house, you're adding $300,000 to the capital stock," Case said. "That's a lot of GDP just in the direct effect of housing starts. It's been the perfect instrument of housing policy."
Though he said "I believe there is a recovery," Case said he is also dismayed at the lack of inventory on the market, in part because of a slower-than-expected foreclosure process.
"We thought the shadow inventory would be pouring on the matter as trends changed," he said. "That never happened."
What the economy is left with then, is a market that has, as Shiller said, merely returned to normalcy from extremely depressed levels.
Case said areas such as Los Angeles and San Francisco actually could be in bubble territory, but the rest of the market will see more incremental gains.
"There is momentum in the housing market," Shiller said. "Momentum suggests increases in the next six to 12 months. (Longer-term) I'm not so optimistic. It's not going to be another big up and down."