David Crowe

Chief Economist 


Washington, D.C.

Anje Jager/agencyrush.com David Crowe Chief Economist NAHB Washington, D.C. dcrowe@nahb.com

Builders, buyers, lenders, investors, and the rest of the world await the definitive signal announcing a revived and healthy housing sector. But the housing sector is not monolithic and the emerging recovery began almost a year ago in some places. What has changed recently is that the number of places and the degree of recovery finally has amassed enough weight to affect the national numbers.

New home sales are running 25 percent ahead of last year and existing single-family home sales are moving forward a more modest 10 percent. Single-family starts and permits also are growing—by more than 20 percent from their pace in 2011. The NAHB/Wells Fargo Housing Market Index was in the low teens until late 2011, but is now closing in on the magic 50 level where builders’ optimism begins to overtake their pessimism. The number of metropolitan areas on the NAHB/First American Improving Markets Index rose from the inaugural level of 12 in September 2011 to more than 100, or more than a quarter of all metropolitan areas.

Some of the luster from these powerful advances is lost when recognizing that 2011 was the worst year for single-family construction since the early 1940s. However, the four areas that have been primary culprits behind the slow housing and economic recoveries are starting to show signs that support a forecast for continued, modest improvement.

The trends that have postponed the housing recovery are unemployment, delinquent mortgages, vacant homes, and fallen home prices. These four are interconnected but collectively have kept some markets from recovering while others have moved forward as improvement in each component compounds the improvement in the others. As house prices fell from unsustainable peaks, those who needed to move or who experienced a loss of income could not sell their home for sufficient value to pay the mortgage, resulting in foreclosures and vacant homes further driving down prices. Reversing some of these elements can start the reversal of all of them, and that’s what is happening in more and more places.

Unemployment remains elevated but has fallen about 2 percentage points from the peak, and employment has increased by more than 4 million since the trough. However, the range is wide—10 states have unemployment rates below 6 percent and 10 are above 10 percent unemployment. Seriously delinquent mortgages (90 days or more late or in foreclosure) have fallen from almost one-in-10 mortgages to 7.3 percent of all mortgages. Sixteen states have fewer than one-in-20 mortgages seriously delinquent, but four states have more than 10 percent as seriously delinquent. Estimates of homeowners underwater range from 11 million to 15 million, but only 3 million are seriously delinquent. Most homeowners continue paying their mortgages even when the outstanding balance exceeds the current value.

The slow curing in mortgage distress has reduced the number and share of homes vacant that were pulling down home values. At the peak, almost 3 percent of owned homes were on the market, or twice the historic rate. More recently, the share of vacant for-sale has fallen steadily since late 2010 and now stands at 2.1 percent. One-quarter of the states have homeowner vacancy rates at 1.5 percent or below, but six states still maintain vacancy rates above 3 percent.

The S&P Case-Shiller index of 20 metropolitan areas increased for most of 2012 and the more geographically comprehensive Federal Housing Finance Agency index is rising at about a 4 percent annual rate. House price improvement continues to be one of the most divergent housing health indicators across markets. Nationally, home prices currently are 17 percent below their peak, but 14 states and the District of Columbia are less than 5 percent below their peak, while four states remain more than 40 percent below their peaks.

While the housing recovery will remain modest, it now appears here to stay.