"The familiar saying that housing brings
the economy out of recessions did not hold true this time around," according to
David Crowe, Chief Economist for the National Association of Homebuilders (NAHB). Crowe, writing in the current edition of
RealtyTrac's Foreclosure News Report said
that home building this time around did not take the well-worn path we have
come to expect in an economic recovery.
Construction has moved up from the bottom, but that movement has not
been "stellar." Housing starts in 2013
were well under 1 million, an improvement from 2012 but the rate of increase
has slowed to under 20 percent so expectations for 2014, Crowe says, are
hesitant and somewhat pessimistic.
The slower than normal recovery of the
housing industry in his view occurred because the Great Recession had
characteristics more like the Great Depression than those typical of other
post-war recessions. It was longer and
deeper and in terms of housing was particularly severe. Housing values slipped as much as a third
nationally and much more in some areas, mortgage delinquencies were widespread
as were foreclosures and while emergency programs and laws stemmed some of the
worst, the damage has taken years to repair.
Now the repairs have been made and "many
of the disturbances that slowed the housing revival have been calmed," and consequently
Crowe has a brighter take on 2014 than many in the field. He sees a return in housing demand,
fundamental housing market stability, and relatively solid economic growth
combining to produce good growth in housing this year.
Single-family construction will total 820,000
in 2014, a better than 30 percent improvement from 2013. Multifamily construction, primarily of rental
apartments, will total 326,000, an 8 percent growth rate but apartment
construction growth will slow as the industry approaches sustainable levels in
the 360,000 unit range. He also sees new
home sales topping 600,000 for the first time since 2006 as demand grows and
builders can acquire the land, labor, and materials needed.
Crowe has this somewhat contrarian
outlook because he sees a lot of factors that have been holding back growth
changing. First, households have
improved their balance sheets. They have
saved more, reduced debt, seen home values improve and investments rise. "From a planning standpoint, households
behaved prudently but the more they saved, the less they spent and the
recession worsened." But net worth has
risen by double digits the past year and this has provided comfort enabling
households to consider consumer and durable commodity purchases while rising
prices will enable formerly underwater homeowners to consider selling and
moving to another home.
The rapid rise in prices over the past couple
of years has been driven by low supply and heavy demand especially at lower
price points and both trends should cool in 2014 Crowe says. Supplies will increase as more owners decide
to sell. But demand will both soften as
investors pull away from the market and increase as households begin to form at
more normal levels. Household formation
nearly collapsed during the recession, dropping from net growth of 1.4 million
to one-half million a year. NAHB
estimates at least a two million back log of unformed households in addition to
the normal 1.2 million flow of household formations over the next decade
Much of the dearth in formations was due
to unemployment which was especially high among young adults who were forced to
continue living with their parents. Since
2011 unemployment rates for young adults have fallen to the same as level as the
general population and their housing demand will continue to rise.
A more normal environment is also being
signaled by indexes showing increased purchases of durable goods, consumer
confidence, and sentiment. "Home buyers have overcome many of their
former fears of the housing market," Crowe says.
Mortgage rates will continue to rise as a
probable shrinkage of federal involvement in mortgages will bring more
expensive private money into the market.
But Crowe says the price of mortgage credit has not been as much of a hindrance
as its lack of availability. He calls
underwriting standards unreasonably tight and says that uncertainty about
future rules and the degree of government involvement helped keep thresholds
high. Some of the uncertainty about
Dodd-Frank regulations has ended and "new leadership at the Fannie Mae and
Freddie Mac regulator may signal some more reasonable policies," so mortgage
lenders will shift resources from refinance to originating purchase mortgages
as rates continue to rise.
Even with Crowe's optimistic outlook he
believes the home building industry will end 2014 only at about two-thirds
normal and the climb back to pre-recession normalcy will take at least two more
years. Even then some individual markets,
such as those restructuring their economic base or where home prices and
production had the largest fluctuations, will take longer to return to a normal
level. Their full recovery will be dictated
by how far down construction fell and the health of fundamental economic underpinnings.