Housing and the Stock Market

House prices have bottomed in many smaller markets although the national indexes continue to show some weakness as they are heavily influenced by large markets with an oversupply of existing homes.

The housing market awaits a solid economic recovery that provides potential home buyers the confidence to move forward with a major purchase. S&P downgrade and the attendant stock market plunge added to uncertainty and consumer discomfort as they saw their wealth fall, again.

But, the real underlying question is whether the economy is headed for a double dip or whether the stock market is simply over-reacting to the string of poor economic reports, the debt ceiling debacle and now the downgrade.

The probability of a double dip has increased, but that outcome remains unlikely. Look for a continued but slow economic recovery that will eventually convince the pent up housing demand to come back into the market. Consumer confidence has been slow to respond to the economic bright spots.

The second half of 2011 is primed to see improvement. Consumers have been repairing their balance sheets, paying down debts and saving more. Businesses have cut expenses to the bare bones and, until recently, improved productivity. Inventories are stable and will need replenishment as we move forward.

Housing market conditions are primed for a recovery. Interest rates are low and the Standard and Poor's downgrade is not likely to affect rates in any appreciable way.

NAHB forecasts a slow economic recovery that will be softened further by investor worries. However, NAHB is not forecasting a double dip recession. Growth will likely improve from the annual rate of less than 1 percent in the first half of this year to 2.5 to 3 percent in the second half, with more solid growth coming next year.

As momentum builds and employment and incomes begin to gain ground, consumers' confidence will improve and the recovery will gain speed in 2012 and 2013.

- Courtesy of NAHB