Housing Barometers

      Of the many components that go into building an economic forecast, the various contributors to housing sales may be the most useful.
   Consider: The ability of a family to purchase a home depends on many factors, the first of which is having a job with a decent salary and a relatively secure future, as well as the ability to afford a down payment and take out a mortgage with a reasonable interest rate.  That's five factors right there.
   Next, consider the price of the home, which will depend partly on its size, age and location. That's four more.
   Next, we get into the slightly more academic aspect known as supply and demand. By this we mean not only the supply of homes, new and existing, available for purchase, as well as the demand for housing and the willingness of owners to sell at a price a buyer is willing to pay. And that price is highly negotiable. Regardless of what an owner thinks the property is worth, its value is the price a buyer is willing to pay, and no more. The trick is to match the two.
   Then there is the supply and demand of mortgage money, which partly affects the interest rate. And there is the willingness of lenders to approve a loan to an individual or family.

   Given all those variables, what is the state of the housing market in America, and what does it bode for the economy as a whole -- or vice versa?

   Existing-home sales have declined, according to the National Association of Realtors, a trade group of sales agents, but the median price nationwide has been rising at double-digit rates for months. In economic terms, this means the supply of homes available for sale has declined, and prices have risen as demand from buyers holds reasonably steady.
   The NAR pointed out that the inventory of homes listed as available for sale is down 7.6 percent from a year ago. And this, said NAR chief economist Lawrence Yun, "will continue to broadly favor sellers and contribute to above-normal price growth."
   Those numbers, by the way, are for June, and were released in late July. Fresh numbers are to be issued before this month is out.
   Meanwhile, new single-family homes sold in June at a rate 8.3 percent above May, and 38 percent above a year-ago, according to the U.S. Department of Housing and Urban Development.
   Builders themselves are more confident, according to the National Association of Home Builders (NAHB).  One reason: The inventory of existing homes available for sale is down, which provides more opportunity for builders of new homes.
  Provided, of course, that buyers have jobs and mortgage money is available. Mortgage rates have risen to 4.61 percent, from 4.58 percent last month, but even so, the Mortgage Bankers Association has reported that loan applications to buy new homes rose 14 percent in July compared to June.
   All numbers are national averages, and do not reflect local conditions. That brings up the classic determinant of location, location and location.
   Housing, unlike employment, is a local market. A worker can move to another part of the country, or even to another country, in search of a job. Moving a house is a far more complex project.

   All of which brings up the critical issues of jobs and wages. With the unemployment rate at 7.6 percent, and the federal minimum wage at $7.50 an hour, virtually no one in a minimum wage job can afford to buy -- or even rent -- a home.
   Again, Economics 101 and the Law of Supply and Demand applies. Where there's a shortage of labor, pay scales rise to attract workers. In some cases, with an abundance of labor, pay scales may decline, but minimum wage laws erect a floor below which firms cannot go. However, they can, and sometimes do, relocate the business in search of lower wage costs.

   Bottom line: Builders and sales agents are optimistic, mortgage rates are below 5 percent, and those with secure jobs at decent salaries are looking to buy homes.

   As for those without secure jobs and decent salaries ... 

   Perhaps the market will worry about them when the supply of comfortable buyers and their demand for housing, as well as their ability to buy, all fall down.