Economists and housing experts who participated in yesterday’s National Association of Homebuilders (NAHB) Construction Forecast Conference agreed that there are many positive signs pointing toward a housing recovery.

The first speaker, Chris Varvares, president of Macroeconomic Advisors, believes we are in the recovery phase now.

“It’s not a great recovery in terms of labor but it’s enough to help,” he says. “There is an improved outlook for households as they see labor improving.

“In 2010, everything is turning around–personal consumption, residential improvements, strength of the housing market,” he said.

He predicted 3.7-percent growth in the gross domestic product this year due to the above factors. The second speaker, Mark Zandi, chief economist for Moody’s Analytics, was in line with Varvares, predicting 3-percent GDP growth in 2010, 4-percent in 2011 and 5-precent in 2012.

But the key catalyst in the recovery is the “really dramatic healing in credit conditions that has taken place,” said Varvares. “That, with the expansion of bank lending, will contribute to the recovery.”

Though Varvares said mortgages may rise slightly, he predicted it won’t squelch the recovery in the housing market. He also added that changes in house prices are critical to the recovery as housing starts benefit from stabilizing house prices.

More good news came in his prediction for housing starts, which he said should be at 1.2 million units by 2011. Zandi was slightly more reserved, predicting 1 million housing starts in 2011 and 1.7 million in 2012.

But again, Zandi agreed with Varvares, saying several factors will contribute to a housing recovery: job growth and credit will improve, and mortgage rates will remain low.

“I don’t think they will raise mortgage rates until employment rates remain lower and I don’t see that happening until 2011,” said Zandi.

When it comes to excess inventory Zandi said it will take until the end of 2011 to work off the excess inventory, and added that the foreclosure pipeline is full.

“As foreclosures rise, prices of other housing stock will remain lower,” said Zandi.

Budget Deficit

Along with the much needed good news, came some bad news when talk turned to the budget deficit. Both Varvares and Zandi said this is a major issue that needs to be addressed.

“We are in an unsustainable path with regards to the deficit,” said Varvares. “In the next few years we will have to address this and it will cause some pain all around.”

He added, “I’ve been studying presidential budgets for years and somehow by the end we always get to fiscal stability by the end of the forecast period.” He said this simply won’t happen this time.

“There was a time when Canada had fiscal problems worse than us but they addressed them and we need to do that,” said Zandi. “We’ve got to anticipate some tax increases.”

David Crowe, chief economist for the NAHB, rounded out the conference and took the time to point out that “the homebuyer tax credits clearly did their job,” he said. “That pickup in sales will ultimately lead to a pickup in starts.”


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