Economy on a steady course despite job scare

June 13, 2012

By Patrice Hill-The Washington Times

While Wall Street and Washington were obsessing over recent signs of softening in the job market and a flare-up of the European debt crisis, much of the rest of the economy has been chugging along showing improvement.

State governments reported Tuesday that their revenues from sales and income taxes are on course to exceed pre-recession levels for the first time in five years – a clear sign that the recovery remains on track.

Various other reports show that manufacturing and the nation’s vast services sector have continued to grow despite the spring slowdown in hiring. Household wealth has started to increase again with a revival in housing prices this spring, and analysts say a long-awaited recovery in the housing market may finally be under way.

“We’re in the early innings of a housing recovery,” said Eric S. Belsky, managing director of Harvard University’s Joint Center for Housing Studies. “Rental markets have turned the corner, home sales are strengthening, and a floor is beginning to form under home prices.”

The importance of the turnaround in the housing market can’t be overemphasized, economists say. Its extreme weakness since 2007 has been at the root of many of the nation’s other problems, including the foreclosure crisis, declining household wealth and job immobility.

With mortgage interest rates at record lows and housing prices the lowest since the 1990s, conditions are more favorable for homeownership than ever before. Economists say housing appears poised to contribute to economic growth again for the first time since 2006.

“Surveys consistently find that the overwhelming majority of young adults plan to own a home in the future, but many would-be buyers have stayed on the sidelines waiting for the job outlook to improve and house prices to stop falling,” Mr. Belsky said.

These “fence-sitters” will move quickly to buy homes once they perceive that prices and interest rates have bottomed out, he said, although he cautioned that any major setback in the job market or larger economy could quash the budding housing recovery.

“We believe that we are now at the start of a sustainable, self-reinforcing recovery in single-family construction,” said Mark Vitner, an economist with Wells Fargo Securities, although he said he expects gains to be modest and slow.

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