Wednesday, October 24, 2012 10:50 PM
Janet Ford
Home Price Appreciation Helps Housing Move Forward on Road to Recovery
Home Price Appreciation Helps Housing Move Forward on Road to Recovery
Sparked by rising home prices across much of the nation, the
housing recovery is now under way, but fiscal uncertainties and other challenges
could result in a bumpy ride in the coming months, according to economists
participating in yesterday’s National Association of Home Builders (NAHB)
webinar on the construction and economic outlook.
“We’re seeing a more
robust housing sector than many other parts of the economy,” says NAHB Chief
Economist David Crowe. “One of the reasons is we have finally begun to see on a
national scale that house prices are picking up again.”
Crowe cited a
number of other factors that are carrying the housing momentum forward. These
include:
• Pent-up household formations
• Rising consumer
confidence
• Increasing builder confidence in all three legs of the industry:
remodeling, multifamily and single-family construction
• Growing rental
demand
• More than 100 metros currently on the NAHB/First American Improving
Markets Index
However, Crowe offered several cautionary factors that
continue to put a drag on housing activity at this time – including builders who
are experiencing difficulties in obtaining production credit, qualified buyers
who are unable to obtain mortgage loans, inaccurate appraisals, seriously
delinquent mortgages that are at least 90 days late or in foreclosure, and a
limited inventory of developed lots in certain markets.
Other causes
contributing to uncertainty in the marketplace include the looming “fiscal
cliff” that will trigger mandatory budget cuts and tax increases at the
beginning of next year, pending Dodd-Frank Act regulations that are making
financial institutions hesitant to lend since they don’t know how the new rules
will affect them, tax reform, and the future role of Fannie Mae and Freddie Mac
in the nation’s housing finance system.
NAHB is forecasting a 21 percent
increase in single-family starts this year to 528,000 units and a further 26
percent climb to 665,000 units in 2013.
Multifamily housing starts are
expected to rise 26 percent this year to 224,000 units and 6 percent in 2013 to
238,000 units.
Optimistic Housing Outlook
Expressing
a more bullish outlook on housing and economic growth, Mark Zandi, chief
economist for Moody’s Analytics, forecast that GDP growth will range in the 2
percent range this year and next and “double that growth closer to 4 percent in
2014 and 2015.” At the same time, he expects job growth to go from two million
per year to closer to 3 million in 2014 and 2015.
“A big part of this
optimism is the housing market,” says Zandi. “I expect 1.1 million total housing
starts in 2013, 1.7 million to 1.8 million in 2014 and over 1.8 million in
2015.”
Zandi notes a range of assumptions behind this rosy forecast,
including the expectation that mortgage rates would remain very low, the
availability of housing credit will improve as private mortgage lending begins
to pick up, and the job market gains traction as policymakers work to resolve
fiscal issues, which will ease market uncertainties.
Specifically, Zandi
cites three critical fiscal policy concerns:
• The fiscal cliff. If
policymakers do nothing, the combination of pending tax increases and spending
cuts set to take effect in January could produce a fiscal drag of four
percentage points, Zandi says, which would throw the economy back into
recession. “Hiring will remain weak until this is resolved,” he said.
•
Treasury debt ceiling. By late February or early March, the Treasury is expected
to hit its debt ceiling. A failure to raise the ceiling would prevent the U.S.
government to borrow to meet its existing legal obligations, including the
issuance of monthly Social Security checks.
• Achieve fiscal
sustainability. Zandi says that federal government expenditures as a percentage
of GDP is 24 percent and revenues is 17 percent. He said this seven-point gap
needs to be slashed to closer to two percentage points of GDP. “We need spending
cuts and tax revenues to narrow future deficits,” he said. “If we can’t do that,
bad things will happen.”
Acknowledging that these challenges won’t be
easy, Zandi says his forecast is based on the assumption that Democrats and
Republicans will eventually strike a deal on these contentious issues because
each side has much to lose. Democrats, he says, don’t want to see tax cuts for
the wealthiest Americans and Republicans don’t like the defense cuts mandated by
sequestration.
If the nation has the “political will to address the
fiscal issues in a reasonable way, I think we will be off and running,” says
Zandi.
A Gradual Climb to Normal
Delving into the
state statistics behind the national numbers, Robert Denk, NAHB’s assistant vice
president for forecasting and analysis, cited a range of differences among the
states in the amount of pain suffered during the recession and the progress that
is being made in recovering.
The hardest hit states -- such as Arizona,
Florida, California and Nevada -- bottomed out the furthest during the downturn
and still have much ground to make up.
Meanwhile, several energy
producing states – North Dakota, Texas, Oklahoma, Montana and Wyoming – will be
back to normal levels of housing production by the end of 2014.
On a
national basis, housing starts are projected to get back to 55 percent of normal
production by the end of next year and 70 percent of normal by the end of 2014,
Denk said.
For more information, visit www.nahb.org.
Janet & Graham Ford
Phone: (918) 798-4428
4105 S. Rockford Ave
Tulsa, OK 74105
www.janetford.com
info@janetford.com
