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THE LUMBER MARKET: An Analysis of Housing’s Soft Rebound

Rays of Sunshine

There is no doubt that most U.S. households are not as financially secure as they were a decade ago. Even so, there is also no doubt that situation is improving.

Consider the following:

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• The labor market really is healing. Claims for unemployment insurance are way down, the average workweek has returned to pre-recession levels and most economists expect wage growth to pick up over the next year in the likely event that the unemployment rate drops below 6%.

• Low interest rates and household deleveraging have reduced household financial obligations to their lowest level in more than 30 years.

• Aggregate home equity has surged by more than 70% since late 2011 and now stands about 7% above its 30- year trend. As a result, the number of properties with underwater mortgages have declined from 12.1M in 2011Q1 to 6.3M in 2014Q1, according to Corelogic.

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• The Fed Survey of Consumer Finances showed that between 2010 and 2013: 1) the fraction of households with late payments declined; 2) the fraction of households who were turned down for credit declined; and 3) the fraction of households with a debt burden in excess of 40% of income declined.

• The financial and psychological damage wrought by the Great Recession left deep scars on the finances of most American households and have contributed to the drawn-out nature of the current economic recovery in general, and the housing recovery in particular. While it is clear that most of these scars are healing, it is also apparent that a robust housing recovery remains elusive for at least another year or two.

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