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