New Signs of Growth Seen in Housing Market

The housing market continues to demonstrate signs of gradual improvement, although the path to recovery is likely to be long and rutted with challenges, according to analysts. Among the key statistics released by government agencies, research firms and industry-related trade associations in recent weeks were the following:

The nation’s home builders are anticipating that factors such as low mortgage rates, attractive prices and the recovering employment market will replace the recently expired government tax credit as incentives to buy new homes, although builders continue to work down the inventory of permits “and take care not to get ahead of the market,” the National Association of Home Builders said last month. Builder confidence in the market for newly built, single-family homes rose for a second consecutive month in May, to its highest level in more than two years, the Washington, DC-based NAHB reported, noting that sales expectations for the next six months continued to gain. “This means that builders are more comfortable that the market is truly beginning to recover, and that positive factors for buying a new home are taking the place of tax incentives to generate buyer demand,” the trade association said. It added, however, “while builder confidence has improved from the depths of the housing downturn, it is still quite low by historic standards.”

While a “temporary fallback” in existing-home sales is expected in the months ahead, other factors are supporting recovery in the market for resales, according to the chief economist for the National Association of Realtors. Lawrence Yun of the Washington, DC-based NAR said last month that the recent upswing in existing-home sales was expected because of the recently expired government tax-credit inducement, but no doubt there will be some temporary fallback in the months immediately after the incentive expires. However, Yun said, improving consumer confidence, stabilizing home prices and favorable affordability conditions bode well for the future. Unsold housing inventory is 2.7% above a year ago, but remains 11.6% below the record of 4.58 million in July 2008, the NAR said. The national median existing-home price for all housing types was up 4.0% from April 2009, while pending home sales are at the highest level since last October, when first-time buyers were rushing to beat the initial deadline for the tax credit, the trade association added.

The decline in residential remodeling activity may be reaching an end, according to a quarterly series of Remodeling Market Indexes just issued by the NAHB. The association reported last month that its latest RMI revealed that both current and future market conditions improved in the fourth quarter of 2009. The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number below 50 indicates that more remodelers say market conditions are getting worse than report improving conditions. The RMI has been running below 50 since the final quarter of 2005, but the first quarter 2010 is the best showing since the first quarter of 2006, the NAHB said. The improvements suggest that the remodeling market “may soon reach its bottom and begin to grow in the coming months,” said NAHB Chief Economist David Crowe. He added, however, that remodelers “are still operating in a very competitive marketplace and dealing with [uncertain] consumers.”

Reversing more than two years of monthly declines, sales of kitchen cabinets and bathroom vanities rose again in April compared to the same month a year earlier, the Kitchen Cabinet Manufacturers Association said last month. According to the Reston, VA-based KCMA, manufacturers participating in the association’s monthly “Trend of Business” survey reported that overall cabinet sales gained 1.2% in April, compared to April of 2009. Sales of stock cabinets declined 2.2% while semi-custom sales rose 7.5% and custom cabinet sales fell 10.2%, the KCMA reported. Despite the monthly gain, year-to-date sales through the first four months of 2010 were down 1.5% compared to the January - April period of 2009, the KCMA added.

Market Analysis

Housing Market Seen Recovering, But Road Ahead May Be ‘Bumpy’

Washington, DC — The housing market is on the road to recovery, but several factors could contribute to a bumpy ride in the coming months, a panel of leading housing industry analysts said last month.

Economists participating in the National Association of Home Builders’ semi-annual Construction Forecast Conference agreed that recently expired home buyer tax credits provided a boost to the market, and that housing momentum is being fueled by low interest rates, pent-up household formations, stabilizing prices and budding employment growth.

However, they said, many factors continue to drag on housing – including a shortage of credit for new and existing projects, competition from short sales and foreclosures and regional economic disparities.

The NAHB is forecasting 552,000 single-family housing starts in 2010, up 25% from last year’s 445,000 level, the lowest annual output since 1959 when the government began collecting housing data. In contrast, multi-family housing starts are expected to lose further ground, falling 18% this year, to 93,000 units, before rebounding to 150,000 units in 2011, the NAHB said.

NAHB Chief Economist David Crowe said he anticipates that nationwide home prices will remain flat this year and post a modest increase in 2011, and that mortgage interest rates will continue to stay low, barely breaking 6% by the end of this year, and not rising much above that level through 2011. Crowe and other panelists also agreed that housing will improve as a reflection of improvements in the job market.