In spite of the most recent bad macroeconomic news coming out of Europe and Italy (to say nothing of the sequester here in the U.S.), we continue to see reasons for optimism in the U.S. economy. This week’s chart of the week unveils the latest home prices and consumer confidence increases reported earlier this week. In looking at the S&P/Case-Shiller index, the leading measure of U.S. housing prices, we see that prices were up 0.9% in December and 6.8% for the year compared to analyst expectations of 6.6%. In addition, January new home purchases skyrocketed by 15.6% from December’s reading. Collectively, the recent increases in the Case-Shiller Index, new home purchases, and consumer confidence are indicative of signs of life in the U.S. economy and may suggest further appreciation in the housing market.

Recently, the decline in the U.S. housing market has shown some evidence of bottoming. The national average home price has crept up off of lows according to the Case-Shiller Home Price Index, and inventories of existing homes on the markets have shrunk significantly since the outset of the credit crunch. Given this new data and a Federal Reserve fiscal policy including QE3 designed to induce access to home financing, it begs the question, “Has access to home financing returned?”

The Federal Reserve conducts a quarterly survey of banks operating in the U.S. called the Senior Loan Officer Opinion Survey on Bank Lending Practices. As part of this survey, mortgage lenders report changes in demand for residential loans as well as whether standards for loan approval are becoming more or less stringent. To assess the health of the loan market, this week’s chart focuses on prime mortgage borrowing, since this category reflects loan seekers that should be considered creditworthy. In the chart, we see that banks are reporting a notable increase in demand for prime residential loans this year. Meanwhile, lending standards required by banks remain strict. The data appears to show that for Americans with control over their personal finances, the affordability of home ownership is starting to outweigh the risks. Meanwhile, banks remain cautious. The percentage of outstanding prime mortgages on their balance sheets remains elevated above the historical average. If these trends continue, investors can expect slow improvements in the residential real estate market, but given the persistent attention to high lending standards that was absent pre-crisis, these improvements should prove to be sustainable and accretive to long-term value.

This Chart of the Week examines home builders’ expectations of the newly built single family home market measured by the NAHB/Wells Fargo Housing Market Index (“HMI”). The HMI is based on a monthly survey conducted by the National Association of Home Builders. The index measures home builders’ perceptions of current sales, sales expectations for the next six months, and traffic of prospective buyers for newly built single family homes. An index value over 50 signifies more builders consider sales conditions good rather than poor.

While still below 50, the HMI has increased over the last five months and is now at a level of 40, which was last seen in June 2006. The improvement in builders’ confidence along with a gradual upward trend in existing home sales and stabilization of home prices are signs of modest improvement in the housing market after a historic collapse from the 2008 financial crisis. Historically low mortgage rates and attractive price opportunities have helped to stabilize the current housing market. However, a number of challenges remain, including high unemployment, a large number of looming foreclosures, strict credit standards, higher required down payments, and current underwater mortgages for would be buyers.

This week’s chart chronicles the trends of home ownership and prices since the turn of the century. During the robust residential real estate market of the mid-2000’s, home ownership rates peaked at 69.2 percent with the home price index exceeding $200,000. However, the financial crisis of 2008 coupled with a surge of foreclosures and high unemployment rates have contributed to a decade low home ownership rate of 66 percent. Not surprisingly, the home price index has cratered as ownership has declined.

A recovery for home ownership and prices faces several headwinds. To begin with, plunging home prices, a shaky job market, and frail economy have many first time home buyers resistant to committing to a purchase, in spite of the attractive price opportunities. For purchasers looking to take advantage of low interest rates, other hurdles remain, chief among them stricter underwriting standards for mortgages and higher required down payments.

Collectively, these trends help explain the booming rental market of today, as seen from the perspectives of demand, supply, and investment. Perhaps more importantly, does this mean that the American dream of owning a home is quickly becoming a thing of the past?

This week’s chart shows the month over month change in construction jobs and the month over month change in annualized housing starts in the U.S. (based on rolling six month averages for each). As the chart illustrates, the steep drop off in housing starts that began in late 2006 resulted in significant job losses in the construction sector starting in mid-2007. The construction sector, which added approximately 1.1 million jobs from January 2003 to December 2006 (an average of about 24,000 jobs a month), lost approximately 2.1 million jobs from January 2007 to December 2010 (an average of about 44,000 jobs per month) according to ADP payroll data. However, over the past several months, a positive trend has started to emerge in new housing starts. This positive trend in housing starts has largely been driven by an increase in construction of multifamily housing units (i.e. apartment buildings) due to the increased demand for apartments (as a result of many households transitioning from homeowners to renters).

While this improvement is a welcome development in the housing market and construction sector, the recent increase in construction jobs is nowhere close to the kind of growth required to make up for the lost construction jobs during the recession and its aftermath. We have had an increase in construction jobs for five consecutive months with approximately 56,000 construction jobs added in the U.S. At this pace, it would take over 15 years to recover all the construction jobs that were lost from January 2007 to December 2010.