Reasonably good news on residential real estate has of late prompted a kind of enthusiasm about housing prospects. It is good to see some improvement in sales and construction activity and these signs, among others, do suggest that the worst on housing has very likely passed. But too much enthusiasm is misplaced. If the free fall is over, much will prevent housing from acting as an economic growth engine for years to come. The economy will grow and the urgency surrounding home values and mortgages will gradually lift, but the best the sector is likely to offer the economy is neutrality.

Not every statistical release in December and January brought good news, but that was the general effect. Sales of existing homes, according to the National Association of Realtors, rose 5% in December alone, bringing them 15.2% above their lows of last July. Sales of new homes, according to the Commerce Department, though dipping slightly in December, still stood almost 6% above their summer lows, while the pace of new home construction at yearend stood almost 21% above its lows of last spring. Unsold inventories of new and existing homes fell to about six months' supply at current sales rates, well down from the eight-plus months' supply earlier in the year. Meanwhile rental rates climbed 2.5% over a year earlier, suggesting that markets were firming in this area as well.

Many of these improvements are a natural outgrowth of remarkably enhanced affordability. Prices of residential real estate have declined almost 35% from their highs, and mortgage rates have declined to decades' low levels. Affordability overall is 40% better than in 2008 and the most attractive in 15 years. Credit standards remain too tight to generate the buying surge that would usually accompany such an affordability improvement, but the change has at least reversed the sales erosion of the last three years. Still, the legacy of that troubled time will weigh on housing for a lot longer yet.

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