TAKE IT TO THE BANK

The recovery is firmly rooted in reason

You can be forgiven for being skeptical of the housing recovery. The spectacular collapse of home prices in after all, was a textbook example of an inflated asset bubble and how markets can stunningly ignore logic. But the recovery that’s taken hold in the past couple of years is firmly rooted in reason. Home sales are gradually moving upward, rather than spiking. Housing starts are moving in line with demand. Rent inflation has steadily returned as apartments fill up.

The housing market has even remained robust despite recent bond yield spikes. Interest rates since May have been creeping upward as the

Federal Reserve has contemplated scaling back its billion amonthasset purchases, whichincludeUS$ in mortgage-backed securities. The purchases, of course, are a stimulus measure meant to offset the damagedone by the 2007 housing collapse.

World Markets research shows the housing market remains resilient despite higher mortgage rates. Existing home sales have remained strong this year, while new home sales, which have pulled back in recent months, still show a clear upward trend. Moreover, notes the recent weakness in new home sales may only be a pause, one that follows an above-average spike in sales earlier this year. “This could simply be the pause that refreshes,” suggests.

Even the dysfunction in Washington can’t seem to hold the housing recovery back. Paul Diggle, a property economist at Capital Economics, noted the October government shutdown wasn’t enough to stop housing’s momentum. “The Federal shutdown is so far proving to be an inconvenience, rather than a show stopper, for the housing market recovery,” he said in a report.

Rising interest rates do continue to pose a risk for housing. But Diggle points out mortgage rates would have to post a big surge this year to derail the recovery. “Unless mortgage rates were to spike by basis points or so, we think that the housing recovery will continue,” he noted.

With the economic damage from October’s government shutdown still lingering and the Fed remaining cautious, such a spike seems unlikely to happen this year. So it’s full steam ahead for the housing recovery.