Now what?

The housing index of the National Association of Home Builders dropped 22 percent in June after two months of increases. Now the gauge of sentiment among builders is back where it stood in March. Along with other indicators, this seems to say that the housing boost earlier in the year was mostly driven by the federal first-time buyer credit. Real demand remains low in much of the country.

Oregon-based economist Bill Conerly sees this extending to house-price appreciation, too. "No good news here," he says concerning Washington and Oregon. Indeed, Washington house prices overall are depreciating at a deeper rate than the national average.

"Overall, both the Housing Market index and data on housing permits and starts show that homebuilder confidence is recovering but still weak," writes Andres Carbacho-Burgos of Moody's Economy.com. "At the current rate of increase in housing permits, the U.S. won't regain pre-bubble levels of residential construction until after 2015. A faster recovery in homebuilder confidence will thus depend on a faster pace of recovery for both the U.S. job market and income growth."

A Harvard study goes deeper. High unemployment and worry about losing work is keeping a housing recovery from gaining traction, and that won't change until the job situation improves.

Whatever "new normal" awaits, it won't be like the go-go years, when in some markets house prices were rising 50 percent or more in a matter of a few years. A large "shadow inventory" of houses kept off the market by investors or patient owners will creep in as conditions improve — keeping the market unstable and prices moderate. And the old bubble of easy Fed credit, liar loans and heavy leverage for builders and buyers is gone for a long time. That means a big hit for many Americans whose wealth had come not from wages, which have stagnated, but from the ever rising value of their house(s).

What next? Patience seems to be the only answer. Try telling that to someone who's underwater and unemployed.

Today's Econ Haiku:

Office 2010
Leaves Google docs in a file
The circular file