Real Estate’s Linchpin

The residential sector continues being the linchpin of real estate as a whole.

One of the linchpins of real estate as a whole is the residential sector, which has been chuggling along the path of recovery since the end of the recession — but at a relatively slow pace, at least compared with non-bubble, pre-recession decades. The latest data show that the pattern is holding. The Census Bureau reported on Tuesday that new home sales through April totaled 179,000 units, a solid increase of close to 24 percent compared with the same period in 2014. The annualized rate in April was pretty warm, too, coming in at 517,000 units, up over 26 percent compared with a year earlier. That counts as good news for the housing market.

Also on Tuesday, Case-Shiller came out with its March 2015 numbers, which are in fact an average of January, February and March. Both the S&P/Case-Shiller 10-City and 20-City Composites saw annual increases in March, with the 10-City up 4.7 percent and the 20-City gaining 5 percent. The U.S. National Home Price Index, which is based on all nine U.S. census divisions, recorded a 4.1 percent annual gain in March. On the whole, those are arguably good numbers as well, since they reflect a steady recovery in prices, not a bubbly one. No one wants the 2000s bubble in home prices to come back, since that kind of motion has proven itself to be a tremendous danger for the economy.

A steady recovery in prices, on the other hand, shores up neighborhoods and property tax bases, improves the climate for other kinds of real estate, and (to a point) encourages continued velocity in housing sales, since the risk of home price depreciation is lessened. If prices keep rising steadily, it might even persuade some Millennials of the virtues of homeownership. Moreover, the increases recently have been fairly widespread, noted Case-Shiller: Of the 19 cities reporting increases for the month, San Francisco led all cities with an increase of 3 percent, with Seattle next at 2.3 percent. Cleveland reported an increase of 0.4 percent, its first positive month-over-month increase since August 2014. New York was the only city to report a negative monthly change, down 0.1 percent for March 2015.

Even so, home prices haven’t really recovered from the recession yet in most markets, at least not in real terms. According to Case-Shiller, its National Index is back to 2005 levels, but when inflation is factored in — and while it’s been modest in recent years, it does add up — then the index is back to 2003 levels. Valuation, then, might as well have been stagnant for more than a decade, something that hasn’t happened since the end of World War II, even considering previous recessions. What does that mean for the economy? Hard to say, but it’s clear that lackluster housing can’t be good for the economy.