The extended real estate boom from 2001 to 2005 “created unrealistic expectations” about the housing market — expectations that are shaping both consumer attitudes and the mind-set of the residential construction trade, according to the chief economist for the National Association of Realtors.
NAR Chief Economist Lawrence Yun noted last month that while 2007 will be the fifth best year for housing on record, perceptions about the state of the market are skewed by the fact that the housing industry is well off the historic levels posted during the recent four-year boom.
“Places like Houston, the Kansas City area, Indianapolis, and the vast middle section of the United States offer affordable prices and continued job growth, Yun observed. “On either coast, Seattle and Raleigh, NC, remain solid. And markets that experienced recent growth declines – like Boston, Denver and Washington, D.C. – have already shown signs of recovery. In short, conditions vary greatly from one city to the next.”
Yun explained that while the recent rise in foreclosures and delinquencies has dampened consumer confidence in real estate, these problems have been concentrated in the subprime market.
“For buyers who qualify for conventional financing, mortgages are available at favorable rates,” he said.
Home prices: mixed
Home appreciation rates vary significantly among the nation’s top markets, according to the latest monthly statistics that track the nation’s 20 largest metro areas. Among those markets, which represent more than 40 percent of the U.S. population, five showed positive home price appreciation rates over the past year, seven posted declines of less than 5 percent, and eight registered losses of between 5 and 10 percent, according to the National Association of Home Builders. With the exception of Detroit, which has suffered significant job losses in manufacturing during the past several years, markets that posted the largest average decline in home prices during the past year – Las Vegas, Los Angeles, Miami, Phoenix, San Diego, Tampa and Washington, D.C. – have appreciated in value by more than 100 percent in the past several years. On a national level, home prices fell 4.5 percent between September 2006 and September 2007. However, since January of 2000, home prices have increased by more than 80 percent.
Remodeling ActivityThe Slowdown Among U.S. Homeowners
The weakness in house prices and consumer confidence has taken a toll on home improvement expenditures, with declines expected to extend well into 2008, according to the Harvard University Joint Center for Housing Studies.
The Joint Center’s latest quarterly figures indicate that homeowner spending for home improvement activity likely declined in 2007 for the first time since 2003. Overall homeowner remodeling spending for 2007 is projected to be 2.3 percent lower than 2006 (see related graph, right).
“As homeowners become increasingly concerned about falling house prices and a slowing economy, home improvement spending is dragging” said Joint Center Director Nicolas Retsinas. “Coupled with very modest home sales, spending levels are likely to fall.”
The recent problems in credit markets are expected to dramatically reduce the level of cash-out mortgage refinancing activity, added Joint Center economist Kermit Baker: “Given that equity withdrawals have been a key source of funding for home improvements, market spending is expected to suffer,” Baker said
Housing MarketEconomists See Turnaround in ‘08
Though there appears to be no let-up to the current housing downswing, economists participating in the NAHB Fall Construction Forecast Conference said they expect the industry to bottom out and to start turning around in 2008.
Acknowledging that there is definitely downward momentum in the market at this time, with starts, sales, prices and permits off, and problems in the subprime and Alt-A mortgage markets, NAHB Chief Economist David Seiders said that housing should nevertheless begin a modest recovery next year.
Seiders sees a turnaround for a number of reasons: The overall economy and job growth continue to move ahead at a decent pace, core inflation is under control, the late-summer credit crunch in mortgage markets is showing signs of easing since the Federal Reserve cut short-term interest rates on September 18, and the supply-demand equation will be better balanced as builders begin to whittle down excess inventories.
“Home sales should bottom out by the end of the first quarter of 2008, and I have starts up in the third quarter of next year, assuming the inventory overhang stabilizes,” he said.
Residential fixed investment, which Seiders said could lop off as much as 0.8 percent in Gross Domestic Product growth this year, should stop acting as a drag on the economy and turn positive in the fourth quarter of 2008, he added.
NAHB is forecasting 828,000 new single-family home sales for 2007 and 781,000 next year, a 5.6 percent decline. Seiders noted that the peak-to-trough decline in home sales from the boom years of 2003-2005 is more than 40 percent, and as sales begin to move slowly upward beginning in the second quarter of next year, they will still only be on par with levels recorded in the late 1990s.
Seiders’ short-term forecast is based on several assumptions: skillful management of monetary policy by the Federal Reserve, maintenance of solid growth in personal income and employment, a manageable wave of home mortgage foreclosures and better performance of mortgage markets going forward.
However, he observed that the long-term potential for housing activity is very good. “By the end of 2009, we may be at a pace of 1.5 million units of new housing production (including manufactured homes). Once we are out of the woods, we should see good growth in front of us — maybe 2 million per year.”
Agreeing the housing market trough is in sight, Maury Harris, managing director and chief economist at UBS Investment Bank, said he sees “housing bottoming out in the first half of 2008 and starting to pick up in the second half of the year.”
The last time a housing recession was this serious was in the mid-1960s, Harris said, but the big difference between then and now is that “the fed is not dealing with inflation.”
Supplier NewsMasco President Retires
Masco Corp. announced that Alan Barry stepped down as president and chief operating officer Nov. 30, 2007 in connection with his previously announced retirement. The company also announced that chief executive officer, Timothy Wadhams, 59, will assume the additional title of president, and Donald J. DeMarie Jr., 45, EVP, will serve as chief operating officer.
Barry joined Masco in 1972 as a divisional controller and rose through the ranks to eventually lead global operations.
“We have been fortunate, for over 35 years, to have the benefit of Alan’s vision, operational skills and total dedication to Masco,” said Richard Manoogian, executive chairman. “He has been the driver of our emphasis on developing new innovative products, and we will benefit from his efforts for years to come.”
Masco Corp. is a leading manufacturer of home improvement and building products, as well as a leading provider of services that include the installation of insulation and other building products.
Remodeling Industry Events
February 13 - 16
The 2008 International Builders Show
Orange County Convention Center
April 11 - 13
K/BIS: The Kitchen/Bath Industry Show and Conference
McCormick Place Convention Center
May 13 - 17
American Institute of Architects National Convention and Design Expo
Boston Convention & Exhibition Center