Housing Might Not be Looking so bad After All

“The familiar saying that housing bringsrnthe economy out of recessions did not hold true this time around,” according tornDavid Crowe, Chief Economist for the National Association of Homebuilders (NAHB).  Crowe, writing in the current edition ofrnRealtyTrac’s Foreclosure News Report saidrnthat home building this time around did not take the well-worn path we haverncome to expect in an economic recovery. rnConstruction has moved up from the bottom, but that movement has notrnbeen “stellar.”  Housing starts in 2013rnwere well under 1 million, an improvement from 2012 but the rate of increasernhas slowed to under 20 percent so expectations for 2014, Crowe says, arernhesitant and somewhat pessimistic.  </p

The slower than normal recovery of thernhousing industry in his view occurred because the Great Recession hadrncharacteristics more like the Great Depression than those typical of otherrnpost-war recessions.  It was longer andrndeeper and in terms of housing was particularly severe.  Housing values slipped as much as a thirdrnnationally and much more in some areas, mortgage delinquencies were widespreadrnas were foreclosures and while emergency programs and laws stemmed some of thernworst, the damage has taken years to repair. rn</p

Now the repairs have been made and “manyrnof the disturbances that slowed the housing revival have been calmed,” and consequentlyrnCrowe has a brighter take on 2014 than many in the field.  He sees a return in housing demand,rnfundamental housing market stability, and relatively solid economic growthrncombining to produce good growth in housing this year.  </p

Single-family construction will total 820,000rnin 2014, a better than 30 percent improvement from 2013.  Multifamily construction, primarily of rentalrnapartments, will total 326,000, an 8 percent growth rate but apartmentrnconstruction growth will slow as the industry approaches sustainable levels inrnthe 360,000 unit range.  He also sees newrnhome sales topping 600,000 for the first time since 2006 as demand grows andrnbuilders can acquire the land, labor, and materials needed.</p

Crowe has this somewhat contrarianrnoutlook because he sees a lot of factors that have been holding back growthrnchanging.  First, households havernimproved their balance sheets.  They havernsaved more, reduced debt, seen home values improve and investments rise.  “From a planning standpoint, householdsrnbehaved prudently but the more they saved, the less they spent and thernrecession worsened.”  But net worth hasrnrisen by double digits the past year and this has provided comfort enablingrnhouseholds to consider consumer and durable commodity purchases while risingrnprices will enable formerly underwater homeowners to consider selling andrnmoving to another home.   </p

The rapid rise in prices over the past couplernof years has been driven by low supply and heavy demand especially at lowerrnprice points and both trends should cool in 2014 Crowe says.  Supplies will increase as more owners decidernto sell.  But demand will both soften asrninvestors pull away from the market and increase as households begin to form atrnmore normal levels.  Household formationrnnearly collapsed during the recession, dropping from net growth of 1.4 millionrnto one-half million a year.   NAHBrnestimates at least a two million back log of unformed households in addition tornthe normal 1.2 million flow of household formations over the next decade</p

Much of the dearth in formations was duernto unemployment which was especially high among young adults who were forced torncontinue living with their parents.  Sincern2011 unemployment rates for young adults have fallen to the same as level as therngeneral population and their housing demand will continue to rise.</p

A more normal environment is also beingrnsignaled by indexes showing increased purchases of durable goods, consumerrnconfidence, and sentiment.   “Home buyers have overcome many of theirrnformer fears of the housing market,” Crowe says.</p

Mortgage rates will continue to rise as arnprobable shrinkage of federal involvement in mortgages will bring morernexpensive private money into the market. rnBut Crowe says the price of mortgage credit has not been as much of a hindrancernas its lack of availability.   He callsrnunderwriting standards unreasonably tight and says that uncertainty aboutrnfuture rules and the degree of government involvement helped keep thresholdsrnhigh.  Some of the uncertainty aboutrnDodd-Frank regulations has ended and “new leadership at the Fannie Mae andrnFreddie Mac regulator may signal some more reasonable policies,” so mortgagernlenders will shift resources from refinance to originating purchase mortgagesrnas rates continue to rise.</p

Even with Crowe’s optimistic outlook hernbelieves the home building industry will end 2014 only at about two-thirdsrnnormal and the climb back to pre-recession normalcy will take at least two morernyears.  Even then some individual markets,rnsuch as those restructuring their economic base or where home prices andrnproduction had the largest fluctuations, will take longer to return to a normalrnlevel.  Their full recovery will be dictatedrnby how far down construction fell and the health of fundamental economic underpinnings.rn

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.