Residential Supply and Demand

'Home Sales Will Struggle,' Depend On Jobs: Home Builders

Posted on Saturday, January 15, 2011

ORLANDO, Fla. — The housing market could gradually begin to emerge from its doldrums this year, industry experts said Wednesday, but their forecast depends on a steady ramp-up in hiring and for the U.S. jobless rate to get no worse than it is right now.
And even if their outlook proves true, a full housing recovery is still at more than two years away.
The forecast delivered at the International Builders' Show in Orlando sees U.S. economic growth sharply lifting home sales and residential construction over the next two years, but from near-historic lows posted last year.
Many homebuilders, however, remain unconvinced that a recovery is brewing this year. Most, like Lennar Corp., at best see the market not getting any worse.
Still, forecasts by David Crowe, chief economist for the National Association of Home Builders, and Freddie Mac Chief Economist Frank Nothaft are cautiously optimistic.
Crowe's forecast hinges on the U.S. jobless rate getting no worse than 9.4 percent and employment growth accelerating to a pace of 200,000 jobs a month by the end of 2012.
"Home sales are going to struggle, but they will follow employment," Crowe said. "That's clearly the trigger: A better employment market giving people the comfort that they can go forward with a major purchase like a home."
High unemployment, tighter bank lending standards and uncertainty about home prices have kept many people from buying homes, despite low mortgage rates and home prices that have fallen by more than half in some markets since the peak of the housing boom.
The job market and unemployment rate need to improve before the housing can fully recover.
Crowe's forecast calls for the unemployment rate this year to go no higher than 9.4 percent, where it stood last month. He said he also expects the economy to add jobs at an increasing clip, eventually hitting 200,000 a month by the end of next year – about double the number of jobs added by the economy last month.
More jobs should help release some of the pent-up demand for homes squelched in recent years as would-be homebuyers and renters held off buying a home. And it should stoke demand and prompt builders to step up construction to keep up, Crowe said.
Single-family home construction, a bellwether for the housing market and the economy, will rise 21 percent to 575,000 this year and climb to 860,000 in 2012, Crowe said.
Nothaft also sees home construction rising about 20 percent.
"It's still far, far below levels we had seen prior to the downturn in the housing industry, but at least we're moving in the right direction," Nothaft said.
On the mortgage interest rate front, Nothaft's outlook envisions rates climbing to 5.5 percent by the end of this year and as high as 5.8 percent in 2012.
The economists pointed to other consumer trends that bode well for housing.
Sales of cars, furniture and similar big-ticket items are up. Households have been getting their finances in order, paying off debt and saving more money. And tax cuts taking effect this month should help people see more money in their paychecks.
"That suggests to me that consumers are finally willing to go forward with a more substantial financial commitment," Crowe said.
New home sales have been hovering near historic lows since spiking briefly last spring thanks to a temporary federal tax credit for homebuyers. Between May and November, monthly sales of new homes in the U.S. declined or were flat four times. Even in the months when sales rose, the gains came off near-historic lows.
Crowe expects the upcoming spring, traditionally a strong season for home sales, to be better than last year's, even without the aid of government tax credits.
"The stimulus this year will be job markets," he said.
His forecast calls for 405,000 new homes to be sold this year, up 26 percent from 2010. That's still well below the 600,000 generally considered a healthy annual rate for new home sales.
Crowe projects new home sales will be in that range next year. Other economists believe it could take three years to get back to that level, however.
On the price front, Crowe is forecasting prices for new and previously occupied homes to be flat this year and inch up 1.4 percent next year.
Nothaft's forecast calls for home prices to bottom out this year. He anticipates sales of newly built and previously occupied homes will rise 10 percent this year from 2010.
Both he and Crowe agree not all markets will recover as quickly, noting housing will be slow to improve in California, Florida, Nevada, Arizona, states hard-hit by foreclosures.
Still, Crowe said he expects improved home sales this year will help absorb some foreclosures.
ALEX VEIGA, THE HUFFINGTON POST


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