Someone in Washington seems to have noticed the connection between housing and the disappointing performance of the U.S. economy.

In a recent speech, Federal Reserve Chairman Ben Bernanke noted that “the depressed state of housing in the United States is a big reason that the current recovery is less vigorous than we would like.”

These remarks were made as the economy stumbled into another “soft patch,” unable to maintain the momentum that appeared to be building at the end of 2010. Economic activity has been weaker than expected this year, with housing, at best, “bouncing along the bottom.”

One of the bright spots since the beginning of the year, the labor market lost momentum in May, with a big falloff in job growth and the unemployment rate edging up.

Surprisingly, residential construction added jobs in May, stemming from an increase in home improvement and maintenance, sectors that also supported an increase in residential construction spending despite further declines in single-family and multifamily construction spending.

Falling house prices — a major factor behind weak housing demand and housing production over the past 12 months — remained a problem in the first quarter of 2011, with Case-Shiller house price indexes sinking to new lows; 12 of the 20 cities in the Composite 20 index fell to their lowest levels yet in the current housing cycle.

Housing and the economy face more hurdles in the months ahead with the second round of quantitative easing set to end at the end of June and lower GSE (Fannie Mae and Freddie Mac) and FHA loan limits scheduled for the start of October. Both are likely to further depress the housing market by increasing the cost of mortgage financing and putting additional downward pressure on house prices.

Latest Postings

• Fed Beige Book: No Surprises
  The latest Federal Reserve Beige Book was slightly more pessimistic than the previous survey, noting that while economic growth continued “a few Districts indicated some deceleration.” Posted: June 9
  
  
• A Growing Number of Job Openings in Construction
  Data from the Bureau of Labor Statistics indicated that the number of job openings in the construction sector grew during April, but the overall labor market showed only limited signs of improvement. Posted: June 8
  
  
• Bernanke Cites Housing in Economic Outlook Speech
  In a speech on the U.S. economic outlook, Federal Reserve Chairman Ben Bernanke identified challenges in the housing sector as one reason why economic growth is weak, and confirmed that the Fed will continue its accommodative monetary policy. Posted: June 7
  
  
• Employment Growth Slows in May, But Home Improvement and Maintenance Jobs Continue to Rise
  Employment growth slowed to a meager 54,000 jobs in May, but residential construction employment posted a solid gain on the back of a strong increase in employment in the home improvement and maintenance sector. Posted: June 3
  
  
• What Impact Has Quantitative Easing Had on the Economy?
  With the second round of quantitative easing scheduled to end at the end of June, NAHB economist Robert Dietz considers the impact it has had on the U.S. economy. Posted: June 2
  
  
• Expiring Loan Limits Mean Weaker Housing Demand in the Fall
  New research from NAHB examines the likely impact on the housing market of the lower GSE (Fannie Mae and Freddie Mac) and FHA loan limits expected on Oct. 1. Posted: June 1
  
  
• Home Improvements Drive Rise in Residential Construction Spending in April
  A marked increase in home improvement expenditures provided a notable increase in private residential construction spending in March even though spending on single-family and multifamily housing construction continued to decline. Posted: June 1
  
  
• Consumers Less Confident About the Future
  The Conference Board’s Consumer Confidence Index indicates consumers are concerned about future business conditions and are increasingly apprehensive about the availability of new jobs and income growth opportunities over the next six months. Posted: May 31
  
  
• New Low in the Case-Shiller House Price Index
  The Case-Shiller house price indexes fell to new lows in March, sinking below their previous cyclical lows of early 2009. Twelve of the 20 cities in the Composite 20 index fell to their lowest levels yet in the current housing cycle. Posted: May 31
  
  
• Pending Home Sales Falter in April
  The National Association of Realtors (NAR) pending home sales index experienced a sizable decline in April. Posted: May 27
  
  
• Real GDP Growth a Lackluster 1.8% in First Quarter
  The Bureau of Economic Analysis’ “second estimate” of real GDP growth for the first quarter of 2011 remained unchanged at a lackluster 1.8%. Posted: May 26

Eye on the Economy is a bi-weekly digest of the latest economic and housing policy news, analysis and studies as posted on NAHB’s free Eye on Housing blog. The preceding is a reissue of his May 31 edition. To subscribe to Eye on the Economy, click here.

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