NAHB Conference Looks at What Multi-Family, Single-Family Markets Can Expect
October 27, 2010

Source: NAHB

David Crowe, chief economist for the National Association of Home Builders (NAHB), offered somewhat optimistic observations for commercial and residential builders during this afternoon's NAHB Construction Forecast Conference.

"Multi-family has made a surprisingly decent rebound mid-year, compensating for the single family lull," Crowe said. He acknowledged that the rebound had come as a surprise, as earlier this year he'd predicted that multi-family construction starts in 2010 wouldn't surpass those seen in 2009.

Among the contributing factors for the jump in demand for this segment is, not surprisingly, increasing number of renters who have had their credit destroyed as homeowners.

According to Crowe, this area is among those leading in recovery. "It's only retardant is the same as in single-family [construction], and that's that builders are having trouble getting credit."

Residential Recovery Around the Bend?

Residential builders' difficulty in getting loans approved is only one of the reasons builders have been careful about adding any additional inventory. The other remains reduced sales. NAHB recently surveyed its member builders as to why they find potential buyers aren't buying. "The leading reason consistently over this cycle has been they cannot sell their home," Crowe said. "The second leading reason, of course … is the employment situation. People worry about their jobs, even if they have one." He added, "We're actually seeing that as a strengthening cause of reluctance."

This map shows how the states rank in the return to more normal levels of housing production. By the end of 2011, the top 20 percent will be above 80 percent of normal production. The bottom 20 percent will still be below 54 percent of normal production. Source: NAHB

Still, Crowe pointed to some encouragement that "we're seeing the lull of mid year end and some modest recovery occurring."

For starters, according to data released today, new home sales did increase nearly 7 percent from August to September, in what Crowe called "another modest but encouraging signal that we have turned this corner and will begin to see gradual increases in sales."

Among the attributed causes is the fact that home affordability remains high. "The low rate and low house prices that we have experience and continue to experience does mean affordability is very high," he said. "Another encouraging component of our recovery is the pent-up demand."

Crowe explained, "We've got a lot of people right on the edge [of becoming a household], they didn't move out of their parents' home, they've got roommate situations … [these are] reasons they're not a household now, but reasons they're soon to be one."

As an "interesting sideline," Crowe noted that house sizes have declined significantly. "In most recessions that's not unusual … because the first-time homebuyer becomes a larger share of the market … they buy a more modest home," he said. This recession may have compounded this trend as even repeat buyers are buying smaller homes due to having less equity from their current home, having less confidence in future house prices and tending to take energy costs into account as they consider heating or air-conditioning a large home.

Location, Location

Source: NAHB

Crowe also addressed the "foreclosure issue" as a factor of the slow recovery.

"The excess of foreclosed homes are holding down houses prices and absorbing costs that would go to new construction," he said. However, he pointed out, "It is necessary and important to note that it's mostly concentrated in a few places."

Crowe also offered a chart predicting how the states rank in the return to more "normal" levels of housing production, with commercial construction hopefully to follow. The problem illustrated by the map is that "the growth that is occurring is from states that are small and don't have a lot of housing."

Overall, Crowe said, "I do think this year, in total, will be only marginally better than last year." He added, "We'll come out probably slightly better than '09, but not much."

Economic Forecast

While Crowe detailed the housing forecast, Maury Harris, managing director and chief U.S. economist at UBS, offered some insights regarding his economic forecast and Harris did seem fairly positive regarding economic growth.

He mentioned that while the Federal Reserve is concerned about inflation levels, "I'm not as concerned about inflation as the Fed."

Some positive indicators that he mentioned include the fact that the Producer Price Index came down considerably due to the recession but has since stabilized. He also mentioned that rents on new leases are starting to go up. Rentals on a whole are on the increase as well.

"Yes we will have a lot of foreclosures," said Harris. "But these folks have to live someplace. As foreclosures go up we are finally starting to see an increase in rentals."

Of utmost concern to many is unemployment and Harris predicts that job growth is going to pick up.

"The banks are starting to ease lending standards," added Harris. "We saw that in the Fed's loan officer's survey from this summer. They said they are doing it due to competition.

"I'm sure there are people listening saying that if banks would lessen lending standards, I could do more," he added.

Harris also reminded participants that history shows that when the banks ease lending standards, companies start to hire more people.

"This year we finally started to add some jobs," he said.

A Look at November Elections

Acknowledging that small businesses have many problems facing them (including taxes) Harris predicts that the November election may have a positive impact on small companies.

"It looks like the Republicans will do well next week and the small business community will be less concerned about taxation, etc.," said Harris. "What I think we will start to see is a pickup in small business confidence. There will be less concern about what the government will do to small businesses."

Eric Belsky, managing director, Joint Center for Housing Studies at Harvard University, also spoke during the webinar. He had presented earlier this month during the meeting of the Association of Millwork Distributors.

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