The U.S. housing market, once the epicenter of the global financial collapse that spawned today's European debt crisis, is on the verge of delivering some positive news.
For the first time since 2005, U.S. residential construction looks set to expand a little next year, and it could add one- or two-tenths of a percentage point to GDP growth in 2012 — a mere sliver, but one that would add to the picture of a slowly healing U.S. economy.
Every scrap of extra support would help the United States withstand the spreading damage from the crisis in the euro zone, which threatens to push a global slowdown into a deeper and more dangerous recession.
China is slowing quickly as its red-hot property market cools and exports to the European Union, its largest trade partner, sink after years of double-digit growth. Its factory sector has contracted for two months in a row and foreign investment in China is falling.
Brazil also has stalled and India is contracting sharply. Worldwide, 48 central banks have cut interest rates in the last three months to counter the slump. IMF Managing Director Christine Lagarde last week called economic prospects "quite gloomy."
"There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super-advanced economies, that will be immune to the crisis that we see not only unfolding but escalating," Lagarde said.
Liquidity and credit, the lifeblood of commerce, are tightening in some markets as European banks retrench to rebuild capital severely dented by the falling value of their euro-zone sovereign debt holdings. Investors are scrambling for safety by buying U.S. assets, which is pushing up the U.S. dollar. Gold, oil and other commodities are slumping.
"In such an ugly contest, the U.S. dollar wins the least-ugly award," said GaveKal Research Ltd., a Hong Kong-based investment research firm.
Amid the turmoil, any signal that the American economy is gaining muscle would support this dollar-friendly trend.
A batch of data next week could confirm the housing market has bottomed.
Ian Shepherdson at High Frequency Economics points to several factors that suggest a turning point. The inventory of new homes is at a record low of 162,000 properties. If demand perks up, supply would look tight in 2012. The stock of unsold existing homes also is smaller than previously thought, which would support further growth.
The National Association of Home Builders sentiment index indicates optimism is improving. It has risen steadily since June to a level last seen in April 2010, when a taxpayer credit encouraged home buying. Additionally, the S&P Home Builders Index has jumped more than 20 percent this quarter.
Lastly, Shepherdson said, mortgage lenders have loosened down payment requirements, which would allow far more people to qualify to buy.
"The preconditions for a rise in (loan) volumes are in place, and I have been bearish for six years," he said, predicting residential investment will add a few tenths of a percentage point to GDP growth next year.
"Residential investment is no longer a drag on growth. That said, it is so small," said Ellen Zentner, economist at Nomura, which forecasts 2.3 percent U.S. growth next year with 0.1 percentage point from housing.
Construction of rental units already is climbing, a trend expected to continue next year.
But a sustained upturn requires several other elements -- a strong jobs market, income growth and positive economic sentiment.
The labor market is strengthening, but personal income has failed to keep up with inflation. Data on Friday is expected to show growth eased again after a 0.4 percent gain in October.
Without these supporting factors in place, housing demand will remain weak, even with mortgage rates near historic lows.
Bob Walters, chief economist at Quicken Loans, a $29 billion lender, is highly cautious and at best sees the market heading sideways in 2012. "What is happening is we are slowly curing. The problem is it is a multi-year process," he said.
The NAHB builders' sentiment index for December on Monday is seen holding at 20. Shepherdson said if it rises, it would be "quite a big deal" and suggest strength in new housing starts. November starts data on Tuesday is expected to show an increase of around 1 percent.
A report on previously owned home sales on Wednesday is forecast to show a 1.8 percent gain, while data on new home sales on Friday is also seen rising.
Otherwise, the week is shortened by early closings on Friday for the Christmas holiday, and there is a paucity of data.
From the euro zone, a reading on consumer confidence on Wednesday is expected to continue falling, and in Asia, the Bank of Japan on Wednesday is seen remaining on hold after cutting its growth outlook last month.
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