Forecast: Better Times Ahead
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After reviewing a slew of national economic slides for a presentation in Sacramento this morning, I reached an inescapable conclusion. We may see some dips in new home starts and sales over the next few months that result in the so-called "W" recovery. But strong underlying economic factors are poised to lift the housing market out of the doldrums over the next year.
The housing industry is about to get a strong push from the overall economy—in many metro markets buoyed by strength in oil and agriculture, it already has. Consumer confidence is finally on the mend. And with the price and mortgage interest rate declines we’ve had, new homes haven’t been this affordable in more than seven years.
We’ve already seen a nascent recovery in parts of the mid-Atlantic and California, where sales were up year over year through June. Many other markets in Texas and the Carolinas have performed surprisingly well in the last year because prices never got out of hand there. And only a couple of major markets—perhaps including Chicago and Phoenix—have a problem with standing inventory.
That said, we’re still dealing with some strong headwinds that are likely to make this a subdued recovery, and may even push sales and starts down from one month to another. Foreclosures seem to have stabilized for now, but they are running at extremely high levels. The $8,000 tax credit for first time buyers is set to expire in two and a half months, and unless it’s extended, the market may lose its stimulative impact. And we’re still grappling with rising unemployment.
But the housing market has recovered before during a period of rising job losses. Even if 20 percent of the population isn’t in good enough financial shape to buy a home, the other 80 percent can consider it. And it won’t take that many people buying new homes to raise production, since we’re starting from such a low base.
The desire to buy a home will be tempered by some sobering financial reality this time around. People nationwide have lost money on their homes in recent years. Many may wait to recover some of that lost appreciation before they make a move. Others, wanting to get the biggest bang for their buck, will be looking for a home that’s a perfect lifestyle fit. They may not be able to find it.
Nevertheless, research we did this summer corroborated what we've heard from many builders--people have entered the market hoping to find a bargain. If you have good credit and don’t have a home to sell, it’s a great time to buy a new home. Even if you have a home to sell, you may be able to buy something special at a great price.
Finally, the land market has started to crack. Tempting properties, many of them improved, have come on the market in recent months, at prices 20 to 50 percent below the peak. For builders with access to capital, these are enticing opportunities. We’ll see homes on these lots come to market in the spring.
In recent weeks, economists have been revising upward their projections for growth in the overall economy. GDP growth in the third quarter of this year may be in the 2 to 3 percent range instead of barely break-even, after falling only 1 percent in the second quarter.
Even before these revisions, housing economists were forecasting a 30 to 50 percent increase in single-family starts next year, though that will barely return us to 2008 levels. What a relief it will be when the dynamics of the housing industry turn positive again.