A new home for sale in Happy Valley, Ore.Rick Bowmer
At the height of the financial crisis, economists generally agreed the carnage would end when the U.S. housing market stabilized and banks resolved to lend to each other.
Both moments are at hand - if they haven't arrived already.
Sales of new houses in the United States jumped 11 per cent in June, tipping the body of evidence in favour of those who believe the three-year deterioration of the American housing market has finally found a bottom.
At the same time, the rate that banks charge each other to borrow dollars for three months - the London interbank offered rate, or Libor - fell below 0.5 per cent for the first time, the strongest signal yet that confidence has returned to credit markets.
The data reinforce Bank of Canada Governor Mark Carney's revised outlook that Canada's recession will end at some point over the next couple of months, and that a slow recovery in the United States will help its northern neighbour out of the doldrums.
"I feel better about things," David Baskin, who oversees about $300-million of investments as president of Toronto-based Baskin Financial Services Inc., said Monday after the British Bankers' Association released its latest Libor survey and the U.S. Commerce Department published the latest housing data.
"The recession is over," Mr. Baskin said.
"We will see positive growth in Canada and the United States in this quarter."
Americans bought new homes at an annual rate of 384,000 in June compared with 346,000 in May, the third consecutive monthly gain.
The figure was the highest since November and exceeded every estimate collected by Bloomberg News in a survey of 62 Wall Street analysts.
The report followed data last week that showed U.S. existing home sales increased in June, prompting economists at banks ranging from Goldman Sachs Group Inc. to Toronto-Dominion Bank to suggest the U.S. housing collapse is over.
"It is hard not to get a tad bit excited about the outlook for the U.S. housing market," TD's Millan Mulraine wrote in a report for the bank's clients.
Goldman analysts predict that home construction would add to U.S. gross domestic product in the third quarter for the first time since the start of 2006.
But a bottom doesn't mean there will be a bounce.
Like Mr. Carney's prediction that it will take more than a year for the American and Canadian economies to regain full strength, most economists foresee a long cleanup from the collapse of the U.S. housing bubble.
Even if new home sales jumped to 400,000 during the next couple of months, that would be less than a third of the 1.4 million rate of sales reached at the height of the boom in July, 2005.
As important as sales volume is the price - because that's what underpins household wealth and consumer confidence. The median price of a new house decreased 12 per cent in June, to $206,200 (U.S.).
Meanwhile, a record U.S. foreclosure rate is putting more houses on the market at a time when there is already a healthy supply.
Monday's figures showed that U.S. builders had 281,000 houses on the market last month, the fewest since February 1998. It would take nearly nine months to sell those houses at current sales rates, the lowest level since October, 2007 - but still high compared with the six-month supply that economist Paul Ashworth says is necessary to get prices to rise.
"You can be aggressive in calling the bottom in housing," said Mr. Ashworth, senior U.S. economist at Capital Economics Ltd. in Toronto.
"A recovery is much more uncertain."
In the meantime, the U.S. economy should get a lift from cheap credit. With the Federal Reserve's benchmark lending rate near zero, trillions in government money circulating in financial markets and big banks showing they can raise capital, Libor has dropped 93 basis points this year and is down from its peak of 4.82 in October.
The drop in Libor "is undoubtedly a good sign," said Mr. Baskin.
"When banks were afraid to lend to each other, that's what could have crashed the entire system."
With files from Bloomberg News