Economists Fear Housing Double-Dip Underway

A last-minute debt-ceiling raise yesterday by public officials prompted sighs of relief around the nation and a gaggle of news reports suggesting the deal narrowly avoided a double-dip recession for housing and the economy at large. Nodding at distressed indicators, some economists say housing is already in a double-dip recession, with reprieve still off for another two years.

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On Friday the ""Commerce Department"":http://www.commerce.gov/ ""reported"":http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm that overall GDP limped along at an annual rate of 1.3 percent during the second quarter this year, up from 0.4 percent in the first quarter but a shadow of growth recorded before the recession.

Appearing on ""CNBC"":http://www.moneycontrol.com/news/fii-view/signsa-double-dip-have-emerged-meredith-whitney_571723.html Tuesday, Meredith Whitney, head of the ""Meredith Whitney Advisory Group, LLC,"":http://www.meredithwhitneyllc.com/ called the Commerce report a sign of something well underway: a housing double-dip.

""We're certainly in a double dip on housing,"" she said, which puts ""enormous pressure on the economy."" According to the news service, she attributed the housing slump to lower home prices, the result of states trimming social programs and boosting taxes to raise revenue.

Some economists faulted the sluggish GDP and meager job creation for dips in home sales, housing starts, and mortgage rates, among others.

""Figures"":http://www.realtor.org/press_room/news_releases/2011/07/existing_slip released by the ""National Association of Realtors"":http://www.realtor.org/ in July revealed a drop-off in existing-home sales, with transactions for single-family, townhomes, and condos falling to 0.8 percent and a seasonally adjusted rate of 4.77 million in June. The figures came on the heels of a ""CoreLogic Home Price Index"":http://www.corelogic.com/ that recorded home prices falling by 6.8 percent year-over-year in June, echoing a ""Standard & Poor's/Case-Shiller"":http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us price index that saw declines in numbers for homes by 4.2 percent over the first quarter this year.

""I think we've already had a double-dip, frankly,"" agrees Paul Dales, U.S. senior economist at ""Capital Economics"":http://www.capitaleconomics.com/. ""Prices recovered somewhat in August last year and activity did as well, but that was only temporary and since then prices have fallen back, especially during the first half of the year.""

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Dales cites the poor economic climate, high unemployment, and still-tight credit conditions as three main causes for a fallback in the housing economy. He attributes higher home sales over last year to the home buyer tax credit, which expired in June. New home sales jointly released by the ""Census Bureau"":http://www.census.gov/ and ""HUD"":http://portal.hud.gov/portal/page/portal/HUD over June confirmed a decline in single-family houses to a seasonally adjusted annual rate of 312,000, one percent beneath the 315,000 sales registered in May.

From his vantage point in Massachusetts, Vincent Valvo, group publisher at ""The Warren Group"":http://www.thewarrengroup.com/portal/, says the double-dip recession is a done deal for housing across New England. Reports from the Group reflect declines in single-family homes nationally, with only 4,313 houses selling in June ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô the lowest in two decades ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô and year-over-year home prices inching up from $325,000 to $325,850 over the same month.

Economists chalk up the double-dip recession to anemic job creation, despite encouraging gains across the indices over the past year.

Greg McBride, a senior financial analyst with ""Bankrate"":http://www.bankrate.com/, disagrees with the notion of a double-dip, saying that housing never even fully recovered from the first recession. He credits job creation as the biggest current stumbling block for the housing recovery, citing news that the economy added only 18,000 new hires over June, as ""reported"":http://money.cnn.com/2011/07/08/news/economy/june_jobs_report_unemployment/index.htm by ""CNNMoney"":http://money.cnn.com/ last month.

""So much hinges on jobs,"" he says. ""Until we see consistent and substantive job growth, people will question the strength of the economic recovery and the housing market will continue to lag as prospective homebuyers stay on the sidelines.""

Michael Fratatoni, VP of research and economics at the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm (MBA), agrees, calling job growth ""the main factor holding back the housing sector right now. You're not going to get more homebuyers until you have more people with steady paychecks.""

Asked whether up-again, down-again numbers for mortgage applications reflect a housing double-dip, Fratatoni demurs, saying recent upticks in loan volume by 7.1 percent from last week reflected a jump in refinance volume more than anything else. He ascribes declines in mortgage rates and purchase activity in the MBA weekly survey this week to low job growth and negative home equity.

So whither the end to a double-dip recession in the housing sector, if one truly already exists?

""I think maybe over the next couple of years the downward trend will come to an end,"" says Dales. ""I think we're getting close to a period of stabilization. That may involve some modest rises in activity. We may not move forward for the better part of a couple of years, but it won't rise or fall significantly.""

Fratatoni puts it somewhat more bluntly: ""We have an extremely weak housing sector right now. Don't expect a robust rebound but don't expect it to get weaker, either.""