Amid waves of troubling global economic news, there's a sleeper story that's gone largely overlooked, particularly in financial markets.
The U.S. housing market is doing much better. And it's now on the cusp of what could be a dramatic turnaround.
That's the conclusion of a new report by Vancouver-based independent housing economist Doug Smyth, who argues, among other good things, that millions of newly created jobs will eventually power another boom in demand for softwood lumber.
Mr. Smyth's prediction is based on a much more impressive recovery in the U.S. jobs market than is generally recognized. That's driving mortgage foreclosures down, and household formations and consumer spending up.
The result is enormous pent-up demand for homes, which he likened to a boiler rapidly filling with steam. Part of the untold story is new demand coming from a generation of foreign-born Latinos, who are waiting to jump into the market.
"The U.S. economy is now close to the tipping point, where increased employment will generate significant increases in all types of homes," argued Mr. Smyth, former research director at the Industrial Wood and Allied Workers of Canada.
Conditions are now ripe for builders to dig ground on new single family homes at a rate of up to 1.3 million a year as early as next year or 2014, and even more in 2015.
"Given the combination of the improving economics and the enormous build-up of pent-up demographic demand for single-family housing after the last four years of poor starts, it is not a question of whether the recovery will come, or by how much, but when," the reports points out.
Annual single-family starts of 1.3 million would mark a dramatic turnaround from the disaster of the past three years. Single-family housing starts totalled 445,000, 471,000 and 431,000, respectively, from 2009 to 2011.
In May, U.S. builders started work on new single-family homes at an annual pace of 516,000.
Unlike Canada, the U.S. economy has been slow to replace the jobs it lost in the Great Recession.
But Mr. Smyth's research makes the case that the recovery is going much better than most Wall Street economists recognize. He argues that the "real" recovery has now reached 6.6 million in seasonally unadjusted non-farm jobs. That represents 83 per cent of the jobs lost since January, 2010 – the low point of the decade for employment.
He bases the finding on a more rapid bounce-back in new jobs and a smaller estimate of jobs lost.
The generally accepted estimate of jobs lost in the recession is 8.5 million. Mr. Smyth argues that number should be reduced by 630,000, representing the number of Mexican workers who returned home and are unlikely to re-enter the U.S. labour market.
More jobs means more wealth, higher credit ratings and generally improving confidence.
The report highlights two other factors contributing to the optimistic housing forecast – the improving mortgage market, Hispanic demographics and manufacturing renaissance.
Mr. Smyth says there's been a dramatic improvement this year in key mortgage market indicators, including tumbling foreclosures and accelerating house price increases.
The report also points out that the 6.3 million Latinos who came to the U.S. from 2000 to 2007 are now entering their prime home-buying years. And with the economy improving, they have the wealth to start buying.