Amid all the serious downside risks to the economic outlook, including the uncertainty surrounding the fiscal cliff negotiations and the possibility of a resurgence of the crisis in the euro-zone, the recovery in housing is proving to be a rare and unexpected positive. Housing starts are already up by more than 40% over the past year and the NAHB homebuilders' index is at a level consistent with a further 50% surge in starts. Admittedly, the NAHB index has not always been a perfect leading indicator of starts. But if it is even half right, the resulting boost to residential investment could be substantial next year. In addition, house prices are already rising at a 5% annualised pace and the limited supply of homes for sale points to a pick-up to 10%. A rebound in prices of that magnitude next year would help to alleviate the still chronic negative equity problem. It is still early days, but the nascent housing recovery is finally beginning to look like the real thing.
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