America most resilient five years from worst GDP loss since ’30s

Confidence at five-year highs

Housing Rebound

Residential real estate, rebounding from the subprime- mortgage meltdown that triggered the credit crunch in 2007, is “out of the bubble-bursting period,” and poised for further gains, said Robert Shiller, a Yale University professor and one of the creators of the S&P/Case-Shiller Index of home prices. “People are substantially more confident about the housing market.”

The optimism is sparking spending on remodeling. Atlanta- based Home Depot Inc., the largest U.S. home-improvement retailer, and smaller rival Lowe’s Cos., in Mooresville, North Carolina, each reported second-quarter profit that topped analysts’ estimates and raised their annual forecasts.

The number of foreclosure filings is 64 percent below the 2010 peak, and the share of seriously delinquent mortgages -- those more than 90 days behind or in the foreclosure process -- plunged in the second quarter to an almost five-year low, according to industry data.

‘Pristine’ Lending

“Mortgage lending has been so pristine since the recession that mortgage-credit quality is improving quickly, and a year or two from now it’s going to look absolutely beautiful,” Zandi said.

As a result, lenders are becoming more confident. The Fed’s latest quarterly survey of senior loan officers showed banks are seeing an increase in demand for credit and providing loans more readily to home buyers and businesses.

Pent-up demand for goods and services, along with the absence of many excesses that presage the start of a slump, indicates the current expansion could last another four or five years, according to some economists. That would make it almost twice as long as the average, which since the end of World War II has been 58 months, or just shy of five years.

Even so, the U.S. is “still in that process” of returning to its pre-recession strengths, said Julia Coronado, New York- based chief economist for North America at BNP Paribas and a former Fed economist.

Budget Battle

A budget battle on raising the $16.7 trillion debt limit is looming between Obama and House Republicans, who have threatened a default or a government shutdown next month over disagreements about federal spending and the president’s health-care law.

Another risk to the outlook is the Fed’s ability to make “a graceful exit” from its so-called quantitative easing and the near-zero interest rate policy it has maintained since late 2008, Zandi said. While July’s 7.4 percent unemployment rate was the lowest in more than four years, economic and job growth still are short of what the Fed wants.

Central bank officials were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves, minutes of their July meeting showed. Borrowing costs are rising in anticipation.

Bank of America’s Harris said his bigger concern is that Fed officials “get confronted with a problem that they can’t fix because they don’t have much room to add additional stimulus; they are almost out of ammunition.”

Harris still is encouraged by the transition since the Lehman collapse.

“We haven’t had very robust growth, but we’ve seen a lot of the wounds of the crisis heal,” he said. “We’re moving towards a fully healthy economy.”

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