Builders are more confident, consumers are more confident, and the three economists who gathered to present the National Association of Home Builder’s Fall Construction Forecast Wednesday were confident too that the housing market is on its way up.
However, as economists are wont to do, they couched their optimism with caveats and stressed that a “normal” housing market is still a handful of years away.
Still, there were several reasons to be optimistic. Housing starts were up a “good solid 15%” in September says NAHB Economist David Crowe. Likewise, permit numbers were up and promising.
House prices have been on a 7% annualized growth rate in the last seven months, helping to significantly boost the nation’s gross domestic product, something it hasn’t done in years.
And a map of the United States Crow showed was impressively spotted with a pox of markets that have improved for six months or more in the areas of single-family permits, home prices, or employment.
“Almost half of all metropolitan areas have shown some improvement at some time this year,” Crowe said.
Household growth is getting closer to the historically normal rate of 1.2 million a year, although most of that growth at this point is going into rental homes—something Crowe thinks will change as the job market improves.
“Instead of getting one or two pieces of good news, we are getting much more consistent good news,” Crowe said.
But there still are forces damping a housing rebound, Crowe said:
It takes a much better credit score these days to buy a house, 762 on average if you are buying a house through FHA.
Credit for buying, developing, and building homes is better this year, actually improving for the first time in a while; but it is nowhere near as available as it was in the go-go years.
Sixty percent of sellers are still saying they have experienced home appraisals that were below contract price.
Seriously delinquent mortgages are down by 2.4 points from the 9.7% peak; however, levels are still elevated on a historical basis.
There are signs of a developed lot shortage, with the number of builders saying the availability of lots is very low, eclipsing those who say there is plenty of ready land for construction.
Some builders are reporting trouble putting construction crews together. “There is so much dislocation in the supply channels that there are real headwinds,” Crowe said.
And then there are the national economic events that the threesome of economists worry could smother the fledgling recovery.
Falling off the fiscal cliff at the end of the year is a worry if Congress allows tax breaks to expire.
There is still uncertainty about what impact the Dodd-Frank regulations will have on the industry since only a small portion of the law has been implemented.
There is also uncertainty surrounding what will happen with the proposed reforms of Fannie Mae and Freddie Mac and how that will impact the mortgage markets.
The mortgage interest tax deduction for homeowners may or may not remain in effect.
There is also a “missing link” in the housing recovery—job growth, said Mark Zandi, chief economist for Moody’s Analytics. The positive news is that companies have drastically slowed down layoffs, but they haven’t started hiring again to any great extent, despite profitability. Many companies appear to be waiting for some of the economic uncertainty to clear before upping staffing.
Zandi said there is also a second fiscal cliff looming. The nation’s debt is fast-approaching its ceiling. Hitting that could cause issues with the nation’s credit that could undermine a recovery.
Righting the fiscal policy issues will take a surfeit of political cooperation, Zandi said. “I think the only thing missing is political will.”
So when will the market return to normal?
It’s a long road back to the 1.3 million home starts that would be considered “normal,” said Robert Denk, assistant vice president of NAHB Economics. He forecasts it will be 2016 or 2017 before the market fully returns.
During the recession, starts bottomed out at 27% of normal in early 2009. Since then, it’s climbed to 39% of normal.
By the end of next year, Denk predicts, the national average of housing starts will be 55% of normal and up to 70% of normal by the end of 2014. But that’s a national average. Different markets will return to normal on varied schedules.
NAHB is predicting that states such as Texas, Oklahoma, Louisiana, Iowa, Montana, North Dakota, Wyoming, and Utah will be 81% of normal by the end of 2014. Meanwhile, states such as California, Nevada, New Mexico, Illinois, Wisconsin, Kentucky, Ohio, West Virginia, Vermont, and New Jersey will lag the rest at less than 59% of normal by the end of 2014.
However, by the middle of 2015, virtually all the states will be up to 70% of normal housing starts, he said, calling that “feeling better versus perfect health.”
Teresa Burney is a senior editor for Builder magazine.