Housing Recovery to Precede Economic Recovery: Radar Logic

According to ""Radar Logic"":http://www.radarlogic.com, a real estate data and analytics firm, strong job gains will not bolster the housing market despite opinions from economic experts.
[IMAGE] The New York-based firm predicts that a recovery in housing values will precede a recovery in the economy, spending, and jobs.

The U.S. Department of Labor ""released new figures"":http://dsnews.comarticles/nations-unemployment-rate-rises-to-91-2011-06-03 Friday showing that the national unemployment rate edged up from 9.0 percent to 9.1 percent in May. The steady job growth seen in prior months tanked as the economy added a net of just 54,000 new jobs in May and private employment gains sank to their lowest level in a year.

Economists say the sliding job market, along with falling consumer confidence, waning GDP growth, and other weak economic indicators mean the economic recovery has hit another “soft patch.”

Rather than strong job growth driving a robust recovery in the housing market, Radar Logic expects to see slow absorption of excess housing supply and a slow stabilization in housing values, which will eventually spur housing construction and consumer confidence. The drive in housing construction will lead to a recovery in jobs, Radar Logic contends.

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The company notes that during the housing boom, many jobs were created in the home building sector. Most of those jobs disappeared when the housing market collapsed and builders stopped building new homes.

Now builders' concerns over competition from distressed property sales are keeping housing starts near historic lows, and with more homes on their way to foreclosure, Radar Logic says it could take years for the inventory of distressed homes to be absorbed and for prices to stabilize.

There is a correlation, Radar Logic explains, between Americans’ perceptions of their own wealth as expressed in the value of their homes and their willingness to recycle some of that wealth into the economy.

So again, the company believes a recovery in property values will have to come first to help kick-start economic growth.

“If you want a real measure of when housing bottoms, rather than watching for rapid job growth, watch the banks,” Radar Logic says.

Banks are currently requiring large down payments, and according to Radar Logic, it's primarily because they recognize that current dynamics suggest further declines in value and they want more equity supporting their loans.

“They, more than most, know how bad the inventory overhang really is, as they own (or expect to own) most of it,” according to Radar Logic. “The sign that housing markets have hit bottom will be when banks start lending 85 percent loan-to-value as opposed to 70 percent or 75 percent.”

With this indicator in mind, Radar Logic says mortgage lending, bolstered by stability in home values, will help lead the way for economic recovery.