The collapse of the U.S. housing market was a critical cause of the Great Recession and sustained growth in this sector is necessary for the stimulus-driven economic recovery to succeed. After improving in late 2009 and early 2010, the housing market appears to be weakening again following the expiration of the homebuyer tax credit. Despite very low mortgage rates and improved affordability, home sales and prices remain depressed amid high unemployment and a large inventory of vacant homes persists. Beyond policies geared toward stimulating aggregate demand, there is limited scope for additional measures to aid the housing sector. Therefore housing will likely continue to lag behind the recovery rather than lead it.

Housing’s Aborted Recovery

Major housing indicators—including housing starts and existing home sales—have returned to low levels after showing signs of life several months ago. Though housing starts rose a modest 18 percent from December 2009 through April 2010 as the homebuyer tax credit was expanded, they are now at their lowest level in eight months and about 75 percent off their 2006 peak following the credit’s expiration.

Barry Ritholtz provides the following chart, originally from the New York Times, but updated for The Big Picture by Steve Barry.

For larger image, click here.

From The Daily Capitalist

Interesting things have been happening in the real estate markets.