Homebuilding and Remodeling: When Will We
See a Recovery?
November 5, 2010
The industry knows the homebuilding and remodeling markets are
down, but the big question is this: when will we see a recovery?
Kermit Baker, chief economist for the American Institute of Architects,
sought to answer that question during the recent McGraw Hill Construction
Outlook Conference. Baker cited a number of things that must happen
before the market turns around, and offered a few predictions. Among
them: market recovery will begin at the lower end of the price spectrum-the
industry will not likely reach long-term production trend until
2013 or 2014; and home improvement recovery will occur in the fourth
quarter of 2010 and is expected to pick up steam moving into 2011.
He added that renovations of distressed properties and energy retrofits
will pace the turnaround.
A key indicator in a housing recovery is for sale vacant homes
and Baker said "these are modestly improving." He added
that this has been offset by vacant rentals and that there are still
"at least a million rental units to work off."
Other challenges, said Baker, are low household growth and home
"Home ownership is a much bigger risk than we thought,"
he said. "Some households may look to rent and because of that
we won't see a lot of movement in home ownership rates."
He also said that a surprising thing is happening in the industry
in regards to home sales (or lack of them).
"You have house prices that are very affordable and mortgage
rates that are at their lowest we will probably see [in our lifetime]
but yet people still aren't buying. I think a lot of folks are ready
to buy, but are waiting to see if they will go lower. In that respect
I think the Fed may be doing a disservice. Once people know we have
hit bottom they will start buying."
As far as remodeling market predictions, Baker reported that after
growing in the first quarter, planned improvement spending has eased
with some exceptions.
"Recent buyers of distressed properties are spending more
on remodeling," he said.
"The leading indicator of remodeling activity has been bumping
along near the bottom with some growth expected at the end of this
year and continuing into next year."
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