If Policymakers "Get it together" Housing Picture Looks Bright

While he anticipates that the currentrngovernment shutdown will be short-lived, Moody Analytics Chief Economist MarkrnZandi said yesterday that “If policymakers can’t get it together by Oct. 17,rnwe’re toast, and I think we are going into recession.”  Zandi made the remark during the NationalrnAssociation of Home Builders (NAHB)’s Fall Construction Forecast Webinar.</p

The rest of Zandi’s remarks and those ofrnhis co-presenters were decidedly more upbeat. rnZandi said that the fiscal drag on the economy resulting from governmentrnspending cuts and tax increases should continue to fade in the coming years.  The drag will shave 1.5 percent off of GDPrngrowth this year, about half that next year and should disappear by 2016.</p

He also noted that the “private economyrnhas done a marvelous job of reducing leverage and getting their balance sheetsrnin order. American companies are in very good shape and they will do well goingrnforward, with continued strong export growth.” rn Finally, Zandi said thatrndemographics make a compelling argument for a strengthening housing market.  The supply of newly built housing is aroundrn1.7 million units and with current production of around 950,000 units.  “We’ve already made a lot of progress inrnworking off excess inventory. We won’t get housing construction up to 1.7rnmillion quickly. The big problem in the next five years won’t be too muchrnhousing, but too little housing.”<br /<br /NAHB Chief Economist David Crowe said that housing has been a GDP plus, growingrnat two, three, and four times the rate of the rest of the economy over recentrnquarters.  Tight inventories,rndouble-digit price increases, and gradual gains in employment have spurred thernhousing rebound.  Crowe said that pricesrnwill moderate in the next few years as additional inventory comes on line andrninvestors disappear along with the bargains. rnBut household formation, delayed during the downturn, is poised tornrebound and polls indicate consumer homebuying sentiment is running high.</p

However, Crowe cited several headwindsrnthat are impeding the recovery.  Theserninclude today’s tighter credit conditions and the labor shortages and risingrnmaterials costs faced by builders.  Inaccurate appraisals are also hurting homernsales, he said. <br /<br /NAHB is forecasting 924,000 total housing starts in 2013, up 18 percent fromrn783,000 units last year. Single-family production is expected to rise 17rnpercent this year to 629,000 units, jump an additional 31 percent next year torn826,000 and surpass the 1 million mark in 2015. rnMultifamily starts will increase 20 percent in 2013 to 296,000 units andrnrise an additional 10 percent to 326,000, which Crowe called a normal level ofrnmultifamily production.  Residential remodelingrnis back to levels of the early 2000s and should register a modest gain thisrnyear over 2012.<br /<br /Robert Denk, NAHB's assistant vice president for forecasting and analysis, pointedrnout that the recession and the recovery are both more local in character thanrnnational.  Housing nationwide bottomedrnout at an average of 27 percent of normal production in early 2009 but in<bstates where production had soared to unsustainable levels during the boomrnyears — California, Nevada, Arizona and Florida — bottomed out at 10 percentrnto 20 percent of normal when the housing bubble burst.  Other states which did not have a hugernproduction run up during the boom declined to 50 percent of normal production.<br /<br /"We've now gotten past the point where we are digging out of holes andrnrepairing the carnage of the housing markets," said Denk. "It's nornlonger about the boom and the bust. Now it's about the underlying [state andrnregional] economies and how that is supporting the housing recovery.  That's why the bubble states are no longer inrnthe bottom tier and have moved ahead of the industrial Midwest.” <br /<br /The gradual and steady housing recovery now underway across the land will bringrnnationwide housing starts to 71 percent of normal by the fourth quarter of nextrnyear and 93 percent of normal by the end of 2015, Denk said.  Leading the way will be oil and gas producingrnstates Texas, Oklahoma, North Dakota, Louisiana, Wyoming and Montana; and Iowa,rnsupported by agricultural commodities.<br /<br /In another way of looking at the long road back to normal, by the end of 2015rnthe top 20 percent of states will be back to normal production levels, comparedrnto the bottom 20 percent, which will still be below 84 percent.

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