Housing Will Drive the Recovery


S&P Case-Shiller released data on nationwide home prices yesterday.

See if you can spot the trend:

Source: S&P Case-Shiller.

This is excellent news. Keep five things in mind:

1. Prices are rising because the supply of for-sale homes is so low. Part of that is driven by labor shortages in the construction industry. "They can't find enough people to work in housing, that's the only thing holding it back right now," hedge fund billionaire David Tepper said last week. Richard Dugas from Pulte mentioned late last year:

With new home demand having accelerated quickly and having remained strong throughout the year, the number of markets feeling some degree of labor pressure is growing. In fact, almost all of our markets have now reached a point where labor pressures are being experienced to some degree.

2. Housing construction is still well below average, and short of what is needed to keep up with population growth. Residential construction's share of GDP is still about half its long-term average. Until construction picks up considerably (and it will), prices will likely climb higher (but don't expect continual gains).

3. These gains are not pushing us anywhere close to a new housing bubble. Based on price-to-income, price-to-rent, homeownership rates, or any other valuation metric, nationwide home prices are still quite reasonable.

4. As prices rise, fewer Americans are underwater on their mortgages. According to CoreLogic, almost two million fewer homes have an underwater mortgage today compared with just a year ago. For an economy suffering under the weight of ravaged consumer balance sheets and dismal consumer confidence, this is the best news possible. It also spreads throughout industries. Housing's recovery was referred to 19 times in Home Depot's conference call last week. The Wall Street Journalnoted how it affects everything from Ford pickups to banks.

5. As one economist put it, "Housing IS the Business Cycle." Housing caused the recession, and it will be responsible for our recovery.

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The article Housing Will Drive the Recovery originally appeared on Fool.com.

Fool contributor Morgan Housel has no position in any stocks mentioned. The Motley Fool recommends Ford and Home Depot. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published