The economic tea leaves are starting to point toward a modest rebound in the new home market in 2012. Not a big recovery, to be sure. But after a year in which housing starts were the lowest since 1942 and new home sales were the lowest ever, David Crowe, chief economist at the National Association of Home Builders (NAHB), isn’t complaining.
“We’re so far down, we almost have to see some improvement,” Crowe said at the NAHB’s annual convention in Orlando yesterday.
Crowe listed a number of what he called “little grains of positive news” that “individually would be okay, but collectively giving me more hope” that a the new home sector is making something of a comeback.
Among other things, the economist noted that economic growth is not great but still good, job growth is solid, unemployment claims are falling, consumer confidence is recovering, the three-month moving average of both housing starts and single-family permits has been up for eight straight months, and mortgage distress is highly concentrated.
Nationally, Crowe is expecting single-family starts to increase to almost a half-million this year and 660,000 in 2013. That’s off the rock-bottom 429,000 houses that were started in 2011.
But noting that all markets are local, he warned that states which suffered the worst declines will be the ones which will improve the slowest. Similarly, he said, those states which suffered the least during the downturn are likely to improve more quickly. That means jurisdictions which tend to account for 20% of total national production will rebound faster than those which normally account for half the yearly output. So the overall improvement isn’t likely to move the needle very far, Crowe warned. “North Dakota can triple its output and it will never show up in the national numbers,” he said.
The NAHB’s relatively strong prognosis was shared by two other well-known housing economists during the opening day of the big conference, which drew builders and allied professionals.
Frank Nothaft, chief economist at Freddie Mac, said that while the economy continues to send mixed signals and “the clouds haven’t fully cleared,” hopes are starting to rise for a continued gradual recovery. Nothaft said that while housing prices “have a little ways to go” before they hit bottom, they are likely to stop falling by mid-year. And with affordability so strong that is practically “off the charts,” he is projecting total home sales–both new and existing–to increase as much as 5% this year.
As a result, the Freddie Mac economist also is looking for a gradual recovery in one-family starts to 490,000. That’s down from the record 1.75 million single-family starts on an annualized basis in the third quarter of 2005, but it’s better than the 360,000 units that were begun in the first quarter of 2009.
David Berson, former chief economist at Fannie Mae, was even more bullish, predicting greater economic and job growth. And noting that households that failed to form over the last few years are doing so now, he said “the demographics are finally starting to turn positive for housing.”
The only question in Berson’s mind is whether the newly formed households will buy or rent. Many want to buy, he pointed out, but won’t be able to because they have poor credit histories or lack the money necessary for a big downpayment. But that’s not necessarily a bad thing, said Berson, who was PMI’s chief economist when the big private mortgage insurance company folded last year, because as new households take rental units off the market, vacancies will tighten, rents will rise and buying will once again become more attractive than renting. “Not this year, necessarily,” he said. “But certainly in 2013.”
Meanwhile, another economist, Ed Sullivan at the Portland Cement Association, believes the new home sector still has some tough sledding ahead before it turns positive, largely because of the vast amounts of foreclosures that still have to make their way to market and be sold out of what’s popularly known as the “shadow inventory.” As a result, Sullivan, whose members make concrete, a key building product, is looking for just 443,000 single-family starts this year and 567,000 in 2013. But he expects pent-up demand to be fully released in 2014. “That’s when we start to see speculators drive the recovery,” he told reporters in another convention session. “And between 2014 and 2016, you will be surprised by the strength of the recovery.”