The bursting of the housing bubble plunged the economy into a recession from which it has yet to fully recover. But economists say this could finally be the year that housing lifts us out of the doldrums.

“Homebuilding activity will likely remain the strongest growing component of the economy in 2013,” said Keith Hembre, chief economist of Nuveen Asset Management. “After several years of excess supply, demand and supply conditions are now in much better balance.”

Home sales rebounded to the strongest level in five years in 2012, as home building bounced back to levels not seen since early in the recession. Near record low mortgage rates, rising home pricesand a drop in foreclosures have combined to bring buyers back to the market.

The economists surveyed also forecast that there will be just under 1 million housing starts this year — roughly matching the 28% rise in home building in 2012. Moody’s Analytics is forecasting much stronger growth — a 50% rise both this year and next year, which it estimates will create more than 1 million new jobs.

“There’s a lot of pent-up demand for housing, and very little supply,” said Celia Chen, housing economist for Moody’s Analytics. “As demand continues to improve, home builders have nothing to sell. They’ll have to build.” She said that growth in building will mean adding not just construction jobs, but also manufacturing jobs building the appliances and furniture needed in the new homes, which in turn drives overall consumption higher.

And economists say the tight supply and renewed demand for housing should lead to higher home values — about a 3.7% increase according to the survey.

“One of the most significant indirect effects from the housing recovery is the ‘wealth effect’ on consumers due to the recovery in home prices,” said Joseph LaVorgna, chief U.S. economist of Deutsche Bank, who said better home values can affect both consumer psychology on spending as well as their actual finances.

“Even small moves in home prices can have large effects on consumption, because housing comprises such a significant share of household assets,” he said.

But even with the bullish outlook on housing, economists are still forecasting only a modest rise in the overall economy this year. The consensus estimate is for economic growth of about 2.4% in 2013, only a modest improvement from the 2012 growth rate of about 2% they’re forecasting when the final numbers are in.

By far the biggest concern is a standoff on Capitol Hill. About three-quarters of those surveyed picked Congressional gridlock — which could result in a cutback in federal spending – as the biggest problem facing the U.S. economy. Other choices, such as theEuropean sovereign debt crisis, continued high unemployment and increased government regulation, were much less of a concern.

“Washington is now the primary impediment to stronger economic growth,” said Russell Price, senior economist of Ameriprise Financial.

FORECLOSURES are taking significantly longer in states where lenders must go through the courts, and the delay may or may not be good for borrowers, depending on their circumstances. But some researchers say that dragging the process out hurts society at large.

About half of the 50 states have judicial foreclosure systems. The housing market crash so bogged down the systems in New York and New Jersey that foreclosures there have routinely dragged on for two or three years; their timelines are among the longest in the country. The national average, which factors in nonjudicial states, is about one year, according to RealtyTrac, which monitors foreclosures nationwide.

The sluggish process has caused a backlog of loans in foreclosure and is slowing the housing market recovery in judicial states, says Michael Fratantoni, the vice president for research and economics at the Mortgage Bankers Association. As of the end of the third quarter, according to the association, 6.6 percent of all loans were in foreclosure in judicial states, compared with 2.4 percent in nonjudicial states.

A study released last summer by researchers at the Federal Reserve Banks in Boston and Atlanta found that the longer properties languish in delinquency or under a bank’s ownership, the greater the negative effect on the value of surrounding properties.

“The best outcome is to prevent the foreclosure,” said Paul S. Willen, an economist and policy adviser at the Boston Fed. “But if it’s clear that can’t be done, it’s in society’s interest to get the foreclosure done as soon as possible.”

In a separate study last year, Mr. Willen and his colleagues question the basis for giving borrowers more time to try to fix mortgage problems. The study found that avoiding foreclosure was no more likely for borrowers subject to either judicial foreclosure, or laws forcing lenders to wait 90 days before beginning foreclosure proceedings, than it was for other borrowers.

Consumer advocates agree that foreclosures are taking too long in some states. High concentrations of vacant properties have taken a heavy toll on certain neighborhoods, said Michael D. Calhoun, the president of the Center for Responsible Lending in Washington. “We agree that borrowers should be considered quickly for loan modifications,” he said. “They’re more successful if they’re done early on.”

But in his estimation, the delays aren’t a result of the protections provided to consumers under the judicial process, because the court process has worked fine in “normal times.” The problem now, he said, lies with the mortgage servicers. “We had a servicing system that was totally overwhelmed by the housing boom and even more so by the housing crash,” Mr. Calhoun said. “The backlog is due to servicer errors and lack of capacity.”

Communication gaps are also a factor, says Mark S. Cherry, a lawyer who represents borrowers in the state-sponsored foreclosure mediation program in New Jersey. His clients must sometimes return to mediation sessions five or six times before finally getting a loan modification. “Persistence breaks resistance,” he said.

Courts, too, have been overwhelmed. In New Jersey, a typical year brings about 24,000 residential foreclosure filings; in 2009 and 2010, annual filings surpassed 60,000.

The courts have since had time to adjust, especially because lenders have halted the processing of thousands of old cases while they work with federal regulators on improving their practices, said Kevin M. Wolfe, the assistant director of the Civil Practice Division of New Jersey’s Administrative Office of the Courts.

New foreclosure cases are moving much more quickly, and there is no backlog, Mr. Wolfe said. The average time for foreclosures filed this year is 6.4 months.

By the time lenders begin processing those old cases, the court should be far better prepared, he said, adding, “We’re not going to be caught up short this time.”

Source

The U.S. housing market is becoming the leading source of strength for the long-sluggish American economic recovery, outpacing both business investment and exports. But even with the return of that crucial linchpin, job growth is expected to remain weak next year, a new report says.

Job growth will be muted in coming months as employers turn to automation to perform tasks and look for highly skilled workers to fill available jobs, said Edward Leamer, director of the UCLA Anderson Forecast.

In a quarterly report released Wednesday, UCLA forecasters expect moderate U.S. economic growth next year, presuming a “benign resolution” to the set of tax increases and large automatic spending reductions that kick in beginning Jan. 1, known as the “fiscal cliff.”

Even if Congress and the president were to reach a compromise, the U.S. economy isn’t likely to grow at an annualized rate of more than 2% during the first half of 2013. As the year progresses, and with housing and consumer spending predicted to play an increasingly larger role in the recovery, annualized growth isn’t expected to reach much above 3%, according to the forecast.

“We think the job market will improve somewhat, but we don’t think the unemployment rate is going to be driven down very rapidly,” Leamer said. “We have too many Americans without the necessary skills.”

If Congress and the White House reach a fiscal cliff compromise, the report forecasts, the unemployment rate will remain close to 8% next year but fall to 7.2% by the end of 2014 as the jobs engine picks up steam.

If Washington can’t reach a compromise, the Congressional Budget Office has predicted, the U.S. will plunge back into recession next year with the unemployment rate rising to 9%.

Even if the fiscal cliff is avoided, growth in the U.S. will remain tempered by economic stumbles abroad. The report notes that both Europe and Japan are in recession, while the economies in Brazil, China and India are slowing. Those factors will hurt U.S. exports.

The results of a fiscal cliff compromise also will be a drag on growth as spending cuts and tax increases will hold back economic activity.

And although job growth will probably improve across the board as the economy recovers, that improvement will be muted by automation, Leamer said. Employers have been forced to cut costs during the economic downturn, increasing the use of computers and technology to replace administrative assistants, cashiers and laborers. Many of these jobs may never come back

Housing will be a steady driver of the economy, the report says, a change from the last three years, when business investment and exports grew and housing and consumer spending lagged behind. Although late to the recovery, housing has “become the leading source of strength,” the report said.

Housing has rebounded this year as more people compete to buy fewer homes.

Interest rates remain near record-low levels, luring buyers. And investors with cash have poured into the market, looking for cheap properties to flip or rent. At the same time, the number of foreclosures has declined, tightening the supply of cheap homes.

An economic report by PNC Financial Services released this week suggested much of the same.

“Manufacturing had been leading the recovery due to strong business investment, exports and an improvement in vehicle sales,” the report said. “Manufacturing will continue to expand in the near term, but the industry has moved from leading the overall recovery to keeping pace with it. However, construction will be more of a growth driver in 2013. Home building is in recovery.”

UCLA forecasters expect the Golden State’s growth to outpace the nation’s over the next two years.

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