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The New Year is beginning where the old one ended -- with uncertainty about when – or whether – the Federal Reserve will begin cutting interest rates.

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Is this recovery for real? We’re not talking about the economic recovery, which remains, by virtually all accounts, really slow. We’re talking about the housing recovery, which, until recently, was almost universally acknowledged to be a dim prospect, if not an unlikely one, at best.

But the question analysts are posing regularly now is not, when will housing recovery, but “is this recovery sustainable?” And for an increasing number of them, the answer is yes.

“The housing recovery is sustainable," Paul Diggle, an economist at Capital Economics, wrote in a recent commentary to investors, published the same day a CNBC article concluded that “housing may finally be rising from the ashes.”

Even David Blitzer, chairman of the index committee at Standard & Poor’s, who has sounded a cautionary note about most positive home price indicators this year, agreed, “Overall, the housing industry has come back. "Housing is out of the woods and it should be making a contribution to the overall economy going forward," he told Reuters Insider.

Dissenting Views

While this is increasingly a majority view, it is not a unanimous one. Economists Robert Shiller and Karl Case, creators of the Case-Shiller home price index, say the evidence of a sustained housing recovery is not nearly as clear as the consensus view suggests.

“A recovery may be plausible, and home prices have been rising fairly strongly in recent months,” the economists acknowledge, but “we do not see any unambiguous indication in our expectations data of the sharp upward turning point in demand for housing that some observers, and media accounts, have suggested.”

Their main point, in a paper written jointly with a third economist (Anne Thompson), is that short-term expectations of home price increases are driving the current recovery; but long-term expectations are weakening, and it is the long-term expectations, they contend, that will determine home buying trends.

Persuasive Data

Shiller’s track record as a housing economist makes it hard to discount his view. He was one of the very few analysts who identified the housing bubble and its likely result long before the housing market collapsed. Still, the mounting array of positive housing statistics makes a strengthening case for optimism, if not for celebration:

  • Existing home sales increased by nearly 8 percent in August over July, rising to an annual rate of 4.82 million homes, beating predictions and reaching the highest level in 27 months. Median prices rose by nearly 10 percent year-over-year, according to the National Association of Realtors, the largest annual increase in six years.
  • The inventory of homes available for sale fell to a 6.1 month’s supply – 18 percent below the year-ago reading and the lowest level since January. Days on market fell from 92 to 70 in the year-over-year comparison.
  • Pending sales, a key indicator of future activity, declined slightly in August after hitting a two-year high I July. But the August reading of 99.2 was still 10.7 percent above the year-ago mark. Noting the shrinking inventory level, the NAR’s chief economist, Lawrence Yun, said the pending sales dip resulted not from a lack of demand but from a shortage of available homes for sale. Sales contracts, he noted, have been higher year-over year for 16 consecutive months.
  • Sales of new homes also slipped slightly in August, but the small decline (0.3 percent) was against a July pace that was the strongest since April of 2010, when sales were buoyed by a federal tax credit adopted to support the flailing housing market. At annual sales rate of 373,000 units, the August pace was nearly 28 percent above the year-ago level, although still way below the 700,000-units deemed “healthy” by analysts.
  • New home starts increased by 2.3 percent over July, as a 5.5 percent jump in single-family construction offset a nearly 5 percent decline in multifamily construction, which has slowed recently from the torrid pace maintained for much of this year. Building permits, an indicator of future construction activity, declined by 0.2 percent, but that was compared with a four-year high reached in July. And all of the decline was in the multi-family sector; permits for single-family homes increased by 0.2 percent to an annual rate of 512,000 – the highest level in more than two years.
  • Builder confidence, as measured by a National Association of Home Builders (NAHB) index, rebounded in September to a six-year high, increasing from 37 in August to 40 in September. That’s still below the mid-point (50) indicating a rising market, but it is a far cry from the reading of 14 a year ago, when the industry was barely registering a heartbeat.

Encouraging Price Trends

Among the many positive market indicators, home price trends have been particularly encouraging. The median price of new homes sold in August was $256,000 – 17 percent above the year-ago price; the median price for existing homes, reported by the NAR, was$187,400 – 9.5 percent above the year-ago price and the sixth consecutive monthly year-over-year increase – the first time since 2006 that the market has put together a six-month run of price increases.

The Case-Shiller index of home prices in the nation’s top 20 markets posted a year-over year increase of 1.2 percent in July – the largest annual increase in two years and the sixth consecutive gain for this closely watched housing barometer. The largest gains have come in the hardest hit markets, such a Phoenix, where prices increased by 16.6 percent.

Prices are still almost 30 percent below their pre-collapse peak, but the upward trend is helping to lift the negative equity cloud that had been hanging over the housing market. Although 11 million homeowners – about 22.3 percent of all owners with mortgages – are under water, that’s an improvement from 23.7 percent in the first quarter. Negative equity in aggregate declined from $691 billion to $689 billion, as 1.3 million homeowners moved into a positive equity position in the first half of this year, according to statistics compiled by CoreLogic.

“There is a material increase in equity, really the first since the collapse in the housing market, and that is a very good sign," Sam Khater, a CoreLogic economist, told the Los Angeles Times.

Housing Confidence

Reports that home prices are stabilizing and rising again in many markets are boosting the confidence of prospective buyers and sellers. In a recent CNBC survey, 27 percent of the respondents said they expect the value of their homes to increase over the next year – the third consecutive quarter in which that optimistic view has prevailed and the highest percentage to hold it in this survey since 2007.

Eighty percent of the 1,800 “active sellers” responding to a recent Redfin survey said they expect their homes to be worth more in a year or two, and 40 percent of them said they are delaying their selling plans for more than a year because of that expectation.

It is reports such as these that are persuading economists like Sal Guatieri, senior economist at BMO Capital Markets, that we are witnessing “a real housing recovery taking root,” a recovery that is not only sustainable, but that also has the potential to provide a much-needed lift to the broader economy.

This isn’t the first time that housing has been eyed as the engine that could drive an economic recovery. But it is the first time in many years that there has been a realistic expectation it might do so.