Housing market shows glimmer of hope

September 21, 2010: 11:03 AM ET

Why the new housing numbers likely aren't a fluke, but a sign of the start of a housing comeback

New home construction in Rumson, New Jersey.

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No doubt the housing market is still in turmoil, but signs today signal that it could be stabilizing.

Housing starts in August unexpectedly rose to their highest level in four months, the U.S. Commerce Department announced today. The 10.5% increase, reflecting a seasonally adjusted annual rate of 598,000 units,  is the biggest rise in housing starts since last November. What's more, permits for residential construction also rose. Following a 4.1% drop in July, new building permits rebounded 1.8% to a 569,000-unit pace in August.

The housing market is still far from recovery and and foreclosures stemming from the fallout of the financial crisis will surely keep happening, but the August figures are telling.  This is especially so since the August figures follows the April expiration of a federal tax credit for homebuyers that basically propped up demand. (And it's worth noting that though some homeowners may be in technical foreclosure, banks are having a difficult time repossessing properties and kicking people out, due to the laxity with which they wrote boom-era mortgages. That too could be limiting the number of existing homes on the market.)

The August figures also follow Fortune's look at the bullish take on the housing market, which featured a paper by economist Bill Wheaton at the Massachusetts Institute of Technology's Center for Real Estate. Wheaton more than acknowledges the grave troubles of real estate amid high unemployment and the unknown number of foreclosure that could follow in the near future. But when the housing market comes back, he says, it will do so in a big way, contributing to GDP growth at levels unseen during recoveries of most previous recessions.

It's anyone's guess what the housing market will look like year from now, but Wheaton says demand should return to pre-recession levels by 2011 and much of the excess inventory should be absorbed by 2013.  The economist argues that residential investment is currently historically low and trails behind demand. Because of this, the inevitable housing comeback will be a strong one as residential construction catches up with demand. And we just may be seeing the leading edge of it in the figures released today.

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Nin-Hai Tseng
Nin-Hai Tseng
Writer, Fortune

Nin-Hai Tseng covers economics and finance. Before joining Fortune, Tseng was a reporter at The Orlando Sentinel and a public affairs associate at GE. She holds an MPA from Columbia University and a BS in Journalism from the University of Florida. She lives in New York City.

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