Crowe Opens Fenestration Day with Optimistic ForecastApril 12th, 2012 by DWM Magazine
David Crowe, chief economist for the National Association of Homebuilders, opened Fenestration Day this morning with his presentation, “Looking into Housing Markets’ Crystal Ball.” Manufacturers, dealers, distributors and suppliers are all taking part in the event today, which is being held at the El Tropicano Riverwalk Hotel in San Antonio.
Taking a look back at 2011, Crowe commented that there were still many “30-year-olds living in Mom’s basement.”
“Household formation will start again when they move out,” said Crowe. “They will need a house. Hopefully you will be ready to supply that building when things come back around,” he said, adding that by the end of 2013 there will be an increase in housing.
“Mortgage rates are very low and may go up just slightly. We are beginning to see a recovery in employment and that will lead the recovery,” he said.
According to Crowe, the distress in the mortgage market is heavily concentrated.
“In the United States 70 percent of mortgages are seriously delinquent, but this is only in certain states,” he said. “There is a vast number of states that have excess inventory.”
Speaking of home prices, Crowe asked, “What is the ratio of price to income? Affordability remains high.”
He added, “All this information about markets is national, but you have to remember that markets are local.”
According to Crowe, 101 markets are improving.
“We started this improving markets index to show growth,” he explained. “They are spread out everywhere. It started out in September of last year with just 12.”
As for gross domestic product growth, Crowe said the first quarter won’t be as robust as the last but will still be in the 2.2-percent range.
“2012 will still be the stage setter–the year of getting our act together,” he said. “2013 will be more robust.”
He added that 2011 was the worst year on record—the worst year since the 1940s.
“We are stating from a low point, a 17-percent increase this year, which sounds good but is still low,” he said. “We are still a long way off, but a 17-percent increase will be the start of a recovery.”
Looking at multi-family housing, Crowe said this is a completely different story. This segment saw a 55-percent gain last year and “between 2004 and now we have had the same number of homeowners,” said Crowe.
He also talked about remodeling, which he said has been a “bright spot.”
“The tax credits helped buoy the remodeling expenditures. We also had a phenomenon of people who chose not to move,” said Crowe. “We have had a reasonable surge due to that phenomenon.”
According to Crowe, the dollar amount of remodeling expenditures is higher than new homes.
“That has never happened before,” he said.
However, he also pointed out there will be a long road back to normal for many states.
“The recovery is occurring in states that have little effect on total production,” he said. These include, for example, smaller states such as North Dakota.
During the presentation one attendee asked whether the inflation numbers from the government are real numbers.
“We are seeing spikes in certain building products such as lumber, gypsum, etc. … This will be a bumpy recovery and building products may be the worst of it,” said Crowe. “Underlying inflation, I am convinced, will still be relatively low. If you don’t have strong demand it will be hard to push up prices.”
Another question was about how long people still stay in their houses. While it used to be five to seven years, Crowe said, “We don’t have the real numbers yet but indicators show that time will be longer. People will be staying in their houses longer. This also has to do with demographics.”
Another question was about the FICO score. “At what point do you see the banks releasing [this] so the people who live in basements can get credit and move out? Don’t you think that is one of the main factors that is affecting our market?”
“Yes,” Crowe answered. “When I do my survey of builders they say I have a great buyer but they aren’t getting the loans. Yes, mortgage rates are still low but we still have this problem of getting credit.”
Crowe told his audience, “The job of an economist is to make guesses as to how all this will work out. There will be some modest easing in underwriting. Also, the real key to the recovery is job recovery. It has to be consistent–convincing the customer that this is here to stay.”