Webinar Looks at Economy, Housing Market and Where It is HeadedMay 8th, 2012 by DWM Magazine
Last week, some of the industry’s leading economists took a look at the housing market and where it is headed during a webinar sponsored by the Associated General Contractors of America (AGC). The webinar, titled “A Construction Recovery at Last—but How Long and How Strong?,” featured Kermit Baker, chief economist for the American Institute of Architects (AIA); Ken Simonson, chief economist for the AGC; and Bernard Markstein, chief economist for Reed Construction Data.
“We’re well below what anyone feels is the long-term trend for this industry,” said Baker in describing the current housing market.
One major distinction in this downturn in the housing market has been the fall of home prices, according to Baker. “We haven’t seen anything like this housing price drop since early 2006 and early 2009,” he said. “[And] even with the depth of this decline we thought we’d see a larger recovery.”
He noted that the still-large inventory of “distressed homes,” such as foreclosures, is contributing to the continued low prices seen in the market. “Until we work through this huge inventory of foreclosed homes we’re likely to continue to see downward pressure on pricing,” said Baker.
Another contributing factor is the lack of mobility in today’s economy. “The Census Bureau reported that 2011 was the lowest on record for mobility since 1942,” said Baker. “ … Owners may be looking to move but unable to sell their houses.”
Low prices also are creating somewhat of a ripple effect in the market. “People are nervous about buying a home or investing in a home if the price may fall,” said Baker.
However, he said the home improvement market is still faring relatively well. “Pushing over to home improvements, we didn’t go as far down during the downturn and we don’t need to recover as much,” said Baker.
“Home improvements account for somewhere between 40 and 45 percent in the total residential market,” he added. “[One area that is] showing promise is energy-efficient retrofits.”
Much of this focuses on older homes. “Residential energy efficiency programs have to focus on older homes because new homes only account for about 2 percent of the housing stock,” said Baker.
Simonson pointed out that the residential market also has seen some of the steepest declines of the entire construction market. “Total construction has recovered a little, but when you break it into segments, residential has dropped the most sharply,” he said.
And Simonson said the future still seems unclear. “I think the housing outlook is good for multifamily, but still a mystery for single-family,” he said.
Markstein also was optimistic about the construction market as a whole. “Going forward I do expect to see growth but nowhere near where we were a few years ago,” he said.
Though residential construction is on the mend, he pointed out that it’s important to look at the direction from which it’s coming. “Residential construction is recovering, but from a low level,” he said.
He also noted some concerns about the single-family housing market. “There’s no way to overcome the shrinking of the single-family market,” he said. “We’ve had some good year-over-year improvement until recently. We just have to hope this is a momentary stumble and we will get better.”