The Wall Street Journal

29 August 2012

Don’t forget housing.

Markets are intensely focused on what Federal Reserve Chairman Ben Bernanke will say about the possibility of more central-bank bond buying when he speaks Friday in Jackson Hole, Wyo. Also interesting, though, will be the emphasis he places on housing.

During last year’s speech, Mr. Bernanke highlighted how housing was holding back the economic recovery. Underscoring this, the central bank in January sent to Congress a housing “white paper” outlining possible ways to stimulate activity.

Housing has improved considerably since then. The question is how durable the recovery will prove.

S&P/Case-Shiller home-price data due Tuesday should underscore the improving trend. The main 20-city, composite home-price index for June is expected to show its first positive, year-over-year gain since September 2010. This would follow positive performances from other indexes and gauges of sales activity.

The upturn in home prices is especially notable because gains in 2010 were largely due to a government tax credit. Excluding those months, there hasn’t been a positive year-on-year result for the Case-Shiller index since December 2006.

Continued improvement, even at a modest pace, is important to sustain the housing recovery. Despite superlow interest rates, many buyers have hung back for fear of purchasing something that will be cheaper in a year’s time.

But with housing firmer, it may become a tailwind for the economy. Residential investment should contribute about 0.2 percentage point to real gross domestic product this year, the first positive, annual contribution since 2005, estimate Fannie Mae economists. And rising house prices should bolster confidence.

Yet, Mr. Bernanke can’t breathe easy. The same worry he has for the economy, the looming “fiscal cliff,” could derail the housing turnaround by spooking consumers. “While there are underlying forces pushing growth in housing, it’s not going to be robust until the public gets comfortable with the idea there is going to be a growing employment and income environment,” says Doug Duncan, chief economist at Fannie Mae.

While Mr. Bernanke can continue to tinker, the onus is on Congress to set an economic agenda consumers can have confidence in.