2012 and Beyond; NAHB Economist Weighs in on What to Expect

January 17th, 2012 by DWM Magazine

Taking a look at the “dismal science stuff,” David Crowe, chief economist for the National Association of Homebuilders (NAHB), provided a 2012 housing and economic forecast during a recent NAHB webinar. He began by saying that we’re starting 2012 with the same optimism with which we started 2011.

“Unfortunately that optimism in 2011 didn’t prove to be true. So in some ways the prediction for 2012 is a repeat of the prediction of 2012,” said Crowe, sharing a reference to the movie “Groundhog Day.”

Crowe took a look at what happened in 2011 and why it did not turn out the way we’d expected to then set the stage for what may happen in 2012.

For starters, Crowe said there was a pause in housing construction, which began in 2010; the average after that never really got very far.

“That extended to the rest of the economy,” he said.

There were also slow employment gains and as a result of slow employment gains … real income flatted and fell a bit … “contributing to a 2011 that did not turn out the way it was supposed to,” said Crowe. There were many causes such as the tsunami in Japan, an unusually harsh winter and worries over energy prices. “A lot of what economists call temporary issues. But it lasted long enough into 2011 that it was more severe than what just temporary issues could be explained,” said Crowe.

Those “doldrums” hit the builders as well. The Housing Market Index remained in the low teens through most of year.

“That same sense of going nowhere pervaded builders as well,” said Crowe, adding that consumer confidence also plummeted. He pointed out it was weak through the third quarter.

But Crowe said there some are improving signs. For example, both GDP growth and employment gains are improving and unemployment has dropped.

In addition, though mortgage distress is still high, it is falling and is concentrated. Crowe pointed out that the five states with the worst number of foreclosures account for more than half of all foreclosures. So while it’s still a problem, he stressed that the significant problem is isolated in a small part of the country.

Another positive is that both new and existing home sales starts are up, though this has been very recent.

According to Crowe the most important component of homebuilding is demographics. And in this area we are seeing two good pieces of news. First, he said we’ve recently begun to see a percentage change above historic levels, indicating some return to creating households. And second, “that soft spot has created a pent-up demand for about 2 million households.”

So, there are very good underlying conditions in housing. For example, Crowe said mortgage rates are currently historically low, and they will remain low, even through the end of 2012. Also, house prices have come back down to where they were relative to incomes.

Looking at the forecast for this year, Crowe expects some steady growth. In particular, he expects GDP growth to be pretty good. Also, as a whole, 2012 will have growth around 2.2-plus percent with more steady growth above 3 percent in 2013.

This, he said will fall backwards into greater employment and greeter consumer confidence, which will lead people to buy more houses. Home purchases, existing and new, should start to pick up then.

Of other points Crowe made, he expects a slow start in 2012 for single-family construction, though building up to stronger numbers. Multi-family, “is a whole different story,” said Crowe, who noted vacancy rates are going down while rental demand is going up. He expects a 50-percent increase here in 2011 versus 2010. Likewise, owner-occupied residential remodeling is doing well as it did not have as big of a crash. As Crowe concluded, right now the dollar amount of remodeling in owner-occupied homes is larger than “for new single-family construction because remodeling is doing so well and single-family so poorly.”

Hear Crowe Speak at Fenestration Day

David Crowe will highlight the current and forecasted economic and housing market activity as well as insights into the remodeling market at Fenestration Day on April 12 in San Antonio. Join us as Crowe answers the many questions that both dealers and distributors and manufacturing companies have regarding the future of housing. Go to the website to register. www.dwmmag.com/feneday.



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