Desperate for a housing rebound

@CNNMoney June 2, 2011: 11:49 AM ET
construction-workers.gi.top.jpg

NEW YORK (CNNMoney) -- Home prices won't rebound until jobs come back. But jobs won't come back until the housing mess gets fixed.

That's a problem because both the housing market and the broader economy are having trouble getting back in gear. Hiring is losing steam, and after home values hit a post-boom low, many are projecting further price declines.

"The economy can move forward without housing," said Mark Zandi, chief economist with Moody's Analytics. "But I don't think it can flourish and create enough jobs to bring down unemployment in a significant way without a revival of the housing market."

Both Moody's Analytics and mortgage finance giant Fannie Mae (FNMA, Fortune 500) are projecting an additional 5% home price decline through the end of this year. But some economists think the turnaround could be even further away. Barry Ritholtz of Fusion IQ and Dean Baker of the Center for Economic and Policy Research both think prices are overvalued by as much as 12%.

"Right now home prices are a falling asset class and have been for five years," said Ritholtz. "That almost becomes a self-fulfilling prophecy."

Housing typically helps lead the way in an economic recovery not only through a surge of construction and the hiring that goes with it, but though demand for goods and services that go into forming a new household.

"The worst thing about a damaged housing market is it freezes all types of economic activity," said Ritholtz.

Economic malaise takes root

Baker worries about what kind of overall growth can be achieved if housing continues to suffer.

"Housing has been very important in other recoveries. That's not the story today. It's tough to see what else could take the place," said Baker.

Doug Duncan, chief economist of mortgage finance giant Fannie Mae, is focused on the impact of jobs on housing -- and vice versa.

"Our mantra all along has been employment, employment, employment," Duncan said. "Until you see employment growth and then income growth and then household formation, you don't get to the bottom of this."

Duncan is anxiously awaiting the government's monthly unemployment report on Friday. He said a further slowing in the economy could push back his forecast for when a housing recovery will begin.

On Wednesday, payroll processor ADP showed reported that hiring by businesses ground to a halt in May, raising concerns about the recovery in employment. Economists surveyed by CNNMoney are now forecasting 170,000 jobs were added in May, barely enough to keep up with population growth. To top of page

Overnight Avg Rate Latest Change Last Week
30 yr fixed3.94%3.93%
15 yr fixed3.03%3.03%
5/1 ARM3.33%3.27%
30 yr refi4.02%3.99%
15 yr refi3.09%3.07%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Economic Calendar
Latest ReportNext Update
Home pricesAug 28
Consumer confidenceAug 28
GDPAug 29
Manufacturing (ISM)Sept 4
JobsSept 7
Inflation (CPI)Sept 14
Retail sales Sept 14
CNNMoney Sponsors
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.