Housing has been a tremendous drag on the overall economy, and while the ink is not yet dry on the history books, fingers are still pointing in every which direction, and there is not a consensus regarding when the sector will be recovered, but the emerging consensus is that the recovery process has begun. We liken it to a patient being released from the hospital after being in a coma – there will be rehab, there will be slow walking in the beginning, speech will be slurred, and the brain will be slow, but like a recovering patient, housing will take baby steps before being back to 100 percent. That said, what remains unseen is whether or not the nation has learned any lessons, and how hard the pendulum will swing.
Home sales are up, inventory levels are tight, mortgage rates are low, housing starts and permits are up, and three in four major metros are considered improving markets, and various indicators imply that housing is improving as the crisis has come to an end and the nation is trying to catch its breath before it begins walking again.
So what are the mixed signals that have some saying the sky is falling while others are saying the housing sector just ate a can of spinach a la Popeye?
Positive: Housing Starts Way Up
Today, the U.S. Census Bureau revealed that housing starts hit their highest level since 2008 (the year the economy crashed, by the way), and although construction of single-family homes fell slightly, total starts rose seven percent in March over February, rising 47 percent over March 2012. In February, construction levels hit a four year high.
Positive: Inventory Levels Are Up
Bill McBride at CalculatedRisk said of recent data from the National Association of Realtors (NAR), “So far in 2013, inventory is up 9.6% (above the peak percentage increase for 2011 and 2012). It is possible that inventory could bottom this year – it will probably be close – but right now I expect inventory to bottom in early 2014.”
Inventory has been so tight that Realtors report increased buyer activity has created tight markets – so tight that buyers must offer within 24 hours due to multi-bidding scenarios across the nation, so buyers are having to make sure their financing is in place and they are ready to make an offer before they even get in that car with an agent.
Positive: Home Values on the Rise
According to the Zillow Real Estate Market Reports home values are rising faster than rent, and while national home values only rose 0.1 percent for the month in the most recent report, February marks the 16th consecutive month of home values rising, marking the second largest annual gain since August 2006.
Home values took a massive hit when the economy crashed, and many homeowners were suddenly underwater. Rising values helps current homeowners, but Redfin warns that several cities are in danger of another bubble as the market heats up.
Negative: Builder Confidence Dips
According to the National Association of Home Builders (NAHB), builder confidence in the market for newly built, single-family homes fell two points in April, dipping to 42 meaning more builders remain pessimistic about the sector than optimistic. The NAHB cites rising building material costs and concerns over the supply of developed lots and labor.
“Supply chains for building materials, developed lots and skilled workers will take some time to re-establish themselves following the recession, and in the meantime builders are feeling squeezed by higher costs and limited availability issues,” explained NAHB Chief Economist David Crowe.
Negative and Positive: Rents Stabilizing
Landlords have had a nice go of things as rents have steadily rose since the housing crash, as much as 30 percent in a single year in cities like Boston. The good news for renters but bad news for landlords is that rental market growth is slowing and with over 100,000 units already approved to come online this year, rents are said to be stabilizing, and may even begin dropping as soon as this fall.
Negative: Consumers Don’t See This as a Recovery
According to the MacArthur Foundation, 58 percent of Americans believe we’re “still in the middle” of the housing crisis and roughly one in five people believe that the worst is yet to come.
Additionally, 45 percent of current homeowners said they can see themselves renting in the future – not exactly a ringing endorsement for the housing sector. Fully 59 percent of homeowners and 67 percent of renters think “renters can be just as successful as owners at achieving the American Dream.” Three in five said “the focus of our housing policy should be fairly equally split on rental housing and housing for people to own.”
Negative: Credit Remains Tight
According to NAR, lending is still tight, a condition the trade group warned could hold back the recovery in the long run. NAR notes that members report continued problems faced by some buyers in qualifying for loans. “This is particularly the case for condos in view of FHA owner occupancy requirements. A number of REALTORS® expressed concern over unrealistic loan requirements by financial institutions.”
Buyers aren’t alone, though, as builders find themselves impacted by tight lending as well. “Many builders are expressing frustration over being unable to respond to the rising demand for new homes due to difficulties in obtaining construction credit, overly restrictive mortgage lending rules and construction costs that are increasing at a faster pace than appraised values,” said Rick Judson, National Association of Home Builders (NAHB) Chairman and a home builder from Charlotte, N.C.
Positive: Construction Jobs Way Up
The March 2013 jobs report shows that construction employment is growing faster than overall national employment, and “relative to the level of construction activity, there are actually a lot of construction jobs,” notes real estate search company, Trulia.com. Residential construction employment grew 3.8 percent in March compared to March 2012, while overall national employment only grew 1.4 percent.
Trulia notes that the number of residential construction jobs per housing unit under construction is actually above the pre-bubble level: there are now 3.7 jobs for every unit under construction, compared to 2.6 in 2001. As the economy continues to see signs of improvement, Trulia notes the sector could see labor shortages.
While there are many more indicators to take into consideration, this simply addresses the tip of the iceberg. The fact is that as a whole, housing is no longer plummeting into a hopeless abyss, rather is trying to climb its way out of one – but the industry is not out of the hole yet, and unless politicians interfere, the sector could see some substantial improvement (but not necessarily a full recovery) this year.