And while even less economic pain is desirable, this measure of improvement should not be confused with a return to normality. The road to recovery will be long and hard.
 

So far this year, 3.6 million jobs have disappeared and 5.7 million jobs were lost from July 2008 to July 2009.

The seemingly positive news that the unemployment rate decreased from 9.5% in June to 9.4% was not due to more people being employed. It was because job seekers were becoming discouraged and dropping out of the job market.

Employment in residential construction fared no better. Residential construction employment fell 26,700 in July at a seasonally adjusted annual rate. Though that was certainly better than the 67,800 construction jobs lost in November 2008, so far this year, 272,000 jobs in residential construction have been lost and from July 2008 to July 2009, 467,000 jobs in residential construction have been eliminated. And these losses do not include those jobs lost in related industries — such as furniture and appliances — that are driven by home building. [return to top]
 

Gains in productivity are always desirable and, in the long run, they help advance our standard of living. However, this advance arrived on the back of falling employment. In essence, it came about because employed workers are working harder.

Given that the economic environment has been so dismal for so long, most employers are still reluctant to add new workers. Also, to the extent that employers have “stockpiled” labor — kept valued employees on the payroll even in the face of reduced demand — during the recession, they are able to increase output without increasing the number of workers or the hours worked.

The surge in productivity is a hopeful sign that often appears in the early stages of an economic recovery. However, until employers are sure that improvement in the business environment will be sustained, they will continue to rely on their stockpiled workers rather than hire new ones.

While the jump in productivity suggests that the business climate is beginning to improve, the process will be slow — and that will mean continuing, though diminishing, job losses in the near term. Expect net job gains to occur late this year or early next year. The recession is coming to an end, but it is not quite over yet. [return to top]
 

The last two readings of consumer confidence by the Conference Board and consumer sentiment by the University of Michigan have declined. Further, retail sales were down 0.1% in July, even with the “Cash for Clunkers” program drawing in plenty of new car buyers. Excluding autos, retail sales fell 0.6%.

Most consumers remain conservative in their spending and have elected to avoid unnecessary purchases. As the summer winds down, the “staycation” remains the order of the day. [return to top]
 

Single-family building permits have been a little slower to improve, but they have advanced for the last four months.

The first-time home buyer tax credit has aided the improvement in residential construction and, in essence, accomplished what it was expected to do. But the July housing starts and building permits may be the last of the large positive effects this program yields.

With the Nov. 30 deadline to qualify for the tax credit looming, it will now be extremely difficult, if not impossible, to sign a contract, secure financing, build a house and close before the program ends (see First-Time Home Buyer Tax Credit for more information on the credit) — and with its conclusion, one support to the recent improvement in housing demand will be gone.

Some of July’s rise in single-family permits may indicate a slow revival in the housing market beyond the stimulus of the first-time home buyer tax credit and may even be due to some of the expected ripple effect from the tax credit as some potential new home buyers were able to finally sell their existing homes to people who qualified for the tax credit.

This ripple in the housing market may help explain the increased optimism among home builders as reflected in the August NAHB/Wells Fargo Housing Market Index (HMI), which inched up a point to 18 from the month before.

The increase was largely driven by the component gauging builders’ expectations for sales over the coming six months. That component rose smartly from 26 in July to 30 in August and the August reading is double the historically low 15 recorded in February and March of this year. Sales expectation is one of three components that determine the HMI.

We can only hope that this optimism proves prescient, and that we take some solace in the fact that the HMI has been on a general upward trajectory for the past five months. However, this upturn has proceeded at a snail’s pace. The current reading of 18 is well below 50.

Since any reading over 50 indicates that more builders view sales conditions as good than poor, clearly, there will have to be considerably more improvement before we can declare the housing market healthy again. [return to top]
 

While single-family housing is showing signs of revival, multifamily (apartments and condos) construction activity continues to sink, weighed down by tight credit conditions.

Those same tight lending standards, along with extremely conservative (some would say low-ball) appraisals, are also acting as a drag on single-family construction. In a recent survey, 26% of the builders reported that they are losing sales because of low appraisals — some significantly below their cost of construction.

In the Federal Reserve’s quarterly survey of senior loan officers of large regional banks conducted in July, 22% of the 51 banks responding said that, over the previous three months, they had tightened credit standards for prime mortgage loans to consumers, while none indicated they had loosened their requirements.

For non-traditional mortgage loans (sometimes called “Alt-A” loans or loans above subprime in quality but below the standards to qualify as prime loans), nearly half of the 24 banks responding said they had tightened standards. Again, none said they had loosened standards on those loans.

If there is any positive to be garnered from the survey, it is that most of these banks are no longer tightening their mortgage lending standards. For those that are still tightening, most of their actions are minor, around the edges, efforts.

Nonetheless, this survey now represents two-and-a-half years of tightening credit standards to approve mortgage loans. That is not an auspicious lending environment for potential home buyers.

We look forward to the day in the not too distant future (we hope) when these banks will begin their long, slow, cautious process of easing their mortgage credit lending standards. [return to top]
 

Let us rejoice in the good economic news. But don’t not lose sight that the journey to a full recovery is a long one. [return to top]
 

Panels of nationally recognized experts at the day-long conference will discuss economic trends, government policies, developments in the housing industry and the results from NAHB's recent surveys.

For more information and to register, visit www.nahb.org/cfc. [return to top]
 

Subscribe and get downloadable Excel tables that feature the housing starts forecast, gross domestic product (GDP), demographics and more. 

To learn more, visit www.housingeconomics.com. [return to top]