Analysts were expecting a repeat this year, but an unexpected thing happened on the way to the swoon: the ailing housing market took off. “Take off” may be too strong a description, but trust us: Good things happened, good enough to power the economy through the swoon.
Home prices surged in the first quarter at their fastest pace in nearly seven years. Prices in March rose 10.2 percent from a year earlier, according to the authoritative Standard & Poor’s/Case-Shiller Index, the largest annual gains since 2006, when home prices began to go over the cliff. The report sent the Dow Jones to a new high.
Prices are a function of supply and demand, and the supply is not great. Wary homebuilders haven been cautious about launching major new projects. Homeowners with their houses under water — i.e., they owe more on the house than it is worth — or facing foreclosure have decided to tough it out to see if the economy improves.
They may be right. Despite a 2 percent increase in the payroll tax and severe cuts in federal spending, personal consumption is up 1.2 percent and consumer confidence is at a five-year high.
But excuse us if we don’t break out the champagne and begin flinging confetti. The pickup in housing could cause the Fed to reassess its easy money policies and its $85 billion-a-month asset-buying program. As the housing market picks up, mortgage rates will unavoidably rise.
The full impact of the federal sequester — the planned steep cuts in federal spending — has yet to be felt. We might suffer sympathy pains from slowdowns in the Chinese and European markets. We may feel that we’ve learned our lessons from the last housing bubble and that the new, and untested, financial-watchdog agencies created during the recession will be standing guard.
But consider: Home prices are down 28 percent from 2006 and have returned to their 2003 levels. That’s bad news for homeowners, but good for homebuyers, obviously. Yet signs of improvement and recovery are definitely there. We’ll keep the champagne on ice and the confetti close at hand — just in case, mind you.