As a long-term investment, homeownership is still one of the best investments for individual households.
“Why” you may ask? After all, the headlines say the housing market is down and out, with defaults rising at an alarming rate, and mortgage markets so frozen that buyers can’t get a home loan at any price.
What buyers need to realize is that housing markets, like all markets, inevitably have their ups and downs. And homeownership has a track record that is virtually unmatched by any other purchase in terms of its real benefits.
Despite the turmoil in mortgage lending, if you have good credit, a job and steady income, you will find there is still plenty of mortgage credit to be had at good rates. For well-qualified buyers, rates are running at near historical lows.
Homeownership’s Real Value
Here are a few examples of why, dollar for dollar, homeownership is a solid stepping stone to a future of financial security and the single largest creator of wealth for many Americans.
Over the long-term real estate has consistently appreciated, even through periodic adjustments in local markets in response to economic conditions. On a national level, home appreciation has historically increased 5-6 percent annually, report economists at the National Association of Home Builders.
Five percent may not seem much at first, but here’s an example that will put it into perspective: Say you put 10 percent down on a $200,000 house, for an investment of $20,000. At a 5 percent annual appreciation rate, that $200,000 home would increase in value $10,000 during the first year. Earning $10,000 on an investment of $20,000 is an extraordinary 50 percent annual return.
In contrast, putting that $20,000 down payment into the stock market and getting a 5 percent gain would only yield a $1,000 profit.
Compared to Stocks
Looking at it another way, over a longer period of time, if someone put $10,000 into the stock market in 1997, the average annual S&P return would make that investment worth $21,500 today—an increase of $11,500. The median home price in 1997 was $140,000.
Today, that same home would have gained nearly $100,000 in value.
Don’t miss out on the benefits of homeownership.
Wednesday, June 2, 2010
Pending Home Sales Surge Continuing
Pending home sales have risen for three consecutive months, reflecting the broad impact of the home buyer tax credit and favorable housing affordability conditions, according to the National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator, rose 6.0 percent to 110.9 based on contracts signed in April, from an upwardly revised 104.6 in March, and is 22.4 percent higher than April 2009 when it was 90.6. That follows gains of 7.1 percent in March and 8.3 percent in February.
Pending home sales are at the highest level since last October when the index reached 112.4 and first-time buyers were rushing to beat the initial deadline for the tax credit. The data reflects contracts and not closings, which usually occur with a lag time of one or two months.
Lawrence Yun, NAR chief economist, said this second round of surging sales from the tax credit extension looks as strong as the original tax credit. “There were concerns that only a small pool of buyers were left to take advantage of the tax credit extension. But evidently the tax stimulus, combined with improved consumer confidence and low mortgage interest rates, are contributing to surging sales,” he said. “The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs.” NAR expects a net of 1 million additional jobs in the second half of this year and about 2 million in 2011.
“The home buyer tax credit brought close to 1 million additional buyers into the market, which is now helping the trade-up market and has significantly improved the inventory situation. This stabilized home prices more quickly and has preserved about $900 billion in home equity; in turn, that is keeping additional households from going underwater and risking foreclosure,” Yun said.
The Pending Home Sales Index,* a forward-looking indicator, rose 6.0 percent to 110.9 based on contracts signed in April, from an upwardly revised 104.6 in March, and is 22.4 percent higher than April 2009 when it was 90.6. That follows gains of 7.1 percent in March and 8.3 percent in February.
Pending home sales are at the highest level since last October when the index reached 112.4 and first-time buyers were rushing to beat the initial deadline for the tax credit. The data reflects contracts and not closings, which usually occur with a lag time of one or two months.
Lawrence Yun, NAR chief economist, said this second round of surging sales from the tax credit extension looks as strong as the original tax credit. “There were concerns that only a small pool of buyers were left to take advantage of the tax credit extension. But evidently the tax stimulus, combined with improved consumer confidence and low mortgage interest rates, are contributing to surging sales,” he said. “The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs.” NAR expects a net of 1 million additional jobs in the second half of this year and about 2 million in 2011.
“The home buyer tax credit brought close to 1 million additional buyers into the market, which is now helping the trade-up market and has significantly improved the inventory situation. This stabilized home prices more quickly and has preserved about $900 billion in home equity; in turn, that is keeping additional households from going underwater and risking foreclosure,” Yun said.
Thursday, May 27, 2010
30 Year Mortgage Rate Falling to Record Lows
U.S. mortgage rates continued their downward trek in the past week, edging closer to a record low set in early December, according to a survey released on Thursday by Freddie Mac, the second-largest U.S. mortgage finance company.
Lower interest rates on mortgages should buoy home loan refinancing activity, putting more cash into consumers' hands to funnel into the U.S. economy. It also makes homes more affordable during the most important period, the spring selling season.
Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.78 percent for the week ended May 27, down from the previous week's 4.84 percent, according to the survey.
That is below the year-ago level of 4.91 percent and also the lowest the rate has been since the week ended Dec. 3, 2009 when it hit a record low of 4.71 percent. Freddie Mac started the survey in 1971.
"These low rates will help to elevate home-buyer affordability and soften the effects of the sunset of the home-buyer tax credit," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.
Mortgage rates are linked to yields on Treasuries and yields on mortgage-backed securities.
Lower interest rates on mortgages should buoy home loan refinancing activity, putting more cash into consumers' hands to funnel into the U.S. economy. It also makes homes more affordable during the most important period, the spring selling season.
Interest rates on U.S. 30-year fixed-rate mortgages, the most widely used loan, averaged 4.78 percent for the week ended May 27, down from the previous week's 4.84 percent, according to the survey.
That is below the year-ago level of 4.91 percent and also the lowest the rate has been since the week ended Dec. 3, 2009 when it hit a record low of 4.71 percent. Freddie Mac started the survey in 1971.
"These low rates will help to elevate home-buyer affordability and soften the effects of the sunset of the home-buyer tax credit," Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.
Mortgage rates are linked to yields on Treasuries and yields on mortgage-backed securities.
Wednesday, May 26, 2010
Tax Credits Boost New-Home Sales in April
Sales of newly built, single-family homes surged 14.8 percent to a seasonally adjusted annual rate of 504,000 units in April as consumers rushed to beat the deadline for expiring home buyer tax credits, according to data released by the U.S. Commerce Department today. This was the strongest level of new-home buying activity since May of 2008.
“Clearly the home buyer tax credit program, which concluded at the end of April, was successful in getting the housing market moving again by helping many families achieve the dream of homeownership,” said Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich. “Now that the program is over, other great buying incentives continue – including exceptionally favorable mortgage rates, very attractive home prices and the steadily improving economy – so there is good reason to expect the positive momentum to continue.”
“The surge of buying activity we have seen in the final two months of the tax credit program has been very encouraging, and has helped builders work down their standing inventories to near historic lows,” said NAHB Chief Economist David Crowe. “It stands to reason that this activity will level off over the next few months, as sales that would have occurred during that time were likely pulled forward to meet the April deadline. That said, today’s favorable home buying conditions, the recovering job market and reviving consumer confidence should help take the place of tax incentives to generate buyer demand.”
Three out of four regions posted substantial gains in new-home sales in April; the Midwest registered a 31.6 percent gain, the South, a 10.8 percent gain, and the West, a 21.7 percent gain. The Northeast posted no change in sales activity from the previous month.
The nationwide inventory of new homes on the market fell 5.8 percent to 212,000 units in April, its slimmest measure since October of 1968. Meanwhile, the month’s supply at the current sales pace declined from 6.2 in March to a modest 5.0 in April, the lowest since November of 2005.
“Clearly the home buyer tax credit program, which concluded at the end of April, was successful in getting the housing market moving again by helping many families achieve the dream of homeownership,” said Bob Jones, chairman of the National Association of Home Builders (NAHB) and a home builder from Bloomfield Hills, Mich. “Now that the program is over, other great buying incentives continue – including exceptionally favorable mortgage rates, very attractive home prices and the steadily improving economy – so there is good reason to expect the positive momentum to continue.”
“The surge of buying activity we have seen in the final two months of the tax credit program has been very encouraging, and has helped builders work down their standing inventories to near historic lows,” said NAHB Chief Economist David Crowe. “It stands to reason that this activity will level off over the next few months, as sales that would have occurred during that time were likely pulled forward to meet the April deadline. That said, today’s favorable home buying conditions, the recovering job market and reviving consumer confidence should help take the place of tax incentives to generate buyer demand.”
Three out of four regions posted substantial gains in new-home sales in April; the Midwest registered a 31.6 percent gain, the South, a 10.8 percent gain, and the West, a 21.7 percent gain. The Northeast posted no change in sales activity from the previous month.
The nationwide inventory of new homes on the market fell 5.8 percent to 212,000 units in April, its slimmest measure since October of 1968. Meanwhile, the month’s supply at the current sales pace declined from 6.2 in March to a modest 5.0 in April, the lowest since November of 2005.
Monday, May 24, 2010
Mortgage Rates at New Lows
Here's some good news for the US housing market: Thanks to the European debt crisis, mortgage rates are at historic lows.
The current average rate for a 30 year fixed loan is 4.87 percent, according to Bankrate.com. That's the lowest rate for the 30 years since Bankrate started keeping track 25 years ago.
Even jumbo loan rates—loans for more than $417,000—have fallen. The 30-year fixed jumbo loan is at an average rate of 4.5 percent, down from nearly 6 percent at this time last year.
"It's the best time in our generation to buy," says Mark Zandi, chief economist at Moody's. "It may be the best time in any generation. Mortgage rates are so low and with homes prices down and lots of inventory, you couldn't pick a better time to buy or re-finance."
Europe's debt crisis is behind the drop. Nervous investors are flocking to the security of US Treasurys, which pushes down their yield and influences a host of consumer interest rates—including those on mortgages.
The decline is also good news for homeowners looking to refinance, particularly those who owe more on their mortgage than their house is worth.
"There's a tremendous window on re-financing," says Greg McBride, chief economist at Bankrate.com. "That's particularly true for people who can take advantage of the government's Home Affordability Refinance Program (HARP)—which allows home owners to refinance into low mortgage interest rates even if they're property value has gone down."
HARP, which was due to end at the end of this June, now runs through June of 2011.
"Think of the benefits if you buy or refinance now," says McBride. "Locking in now at the lower rates means more more bang for the buck and more breathing room for homeowners when it comes to payments."
But the decline in rates probably won't last long, analysts say. So homeowners need to move fast.
"I think they won't last much longer than a month or two at the best," says Lawrence Yun, chief economist at the National Association of Realtors. "I can see them going up to 5.5 percent by the end of June if not sooner."
The reasons? Yun says the worries over Europe will be fading soon and investors will be looking at other assets besides US Treasurys. And there's the US deficit, which will push up Treasury yields.
"The US is fortunate now that there's no pressure on interest rates," Yun goes on to say. "But going forward, higher rates will be needed for financing the debt."
Zandi agrees. "Yes, I can't see these rates being this low in three to four weeks," Zandi says. "Investors will settle down and this current crisis (Europe) will pass and the focus will be back on US debt. It's really a now or never type of proposition, when it comes to getting these types of historic rates."
The current average rate for a 30 year fixed loan is 4.87 percent, according to Bankrate.com. That's the lowest rate for the 30 years since Bankrate started keeping track 25 years ago.
Even jumbo loan rates—loans for more than $417,000—have fallen. The 30-year fixed jumbo loan is at an average rate of 4.5 percent, down from nearly 6 percent at this time last year.
"It's the best time in our generation to buy," says Mark Zandi, chief economist at Moody's. "It may be the best time in any generation. Mortgage rates are so low and with homes prices down and lots of inventory, you couldn't pick a better time to buy or re-finance."
Europe's debt crisis is behind the drop. Nervous investors are flocking to the security of US Treasurys, which pushes down their yield and influences a host of consumer interest rates—including those on mortgages.
The decline is also good news for homeowners looking to refinance, particularly those who owe more on their mortgage than their house is worth.
"There's a tremendous window on re-financing," says Greg McBride, chief economist at Bankrate.com. "That's particularly true for people who can take advantage of the government's Home Affordability Refinance Program (HARP)—which allows home owners to refinance into low mortgage interest rates even if they're property value has gone down."
HARP, which was due to end at the end of this June, now runs through June of 2011.
"Think of the benefits if you buy or refinance now," says McBride. "Locking in now at the lower rates means more more bang for the buck and more breathing room for homeowners when it comes to payments."
But the decline in rates probably won't last long, analysts say. So homeowners need to move fast.
"I think they won't last much longer than a month or two at the best," says Lawrence Yun, chief economist at the National Association of Realtors. "I can see them going up to 5.5 percent by the end of June if not sooner."
The reasons? Yun says the worries over Europe will be fading soon and investors will be looking at other assets besides US Treasurys. And there's the US deficit, which will push up Treasury yields.
"The US is fortunate now that there's no pressure on interest rates," Yun goes on to say. "But going forward, higher rates will be needed for financing the debt."
Zandi agrees. "Yes, I can't see these rates being this low in three to four weeks," Zandi says. "Investors will settle down and this current crisis (Europe) will pass and the focus will be back on US debt. It's really a now or never type of proposition, when it comes to getting these types of historic rates."
Plenty of Reasons to Buy a Home Even After the Tax Credit
Even though the home buyer tax credit expired on April 30 and won’t be renewed, there may never be a better time to buy a home than today, according to the National Association of Home Builders (NAHB). Many outstanding opportunities still exist for home buyers, but they may not be around forever.
“The home buyer tax credit was just one of many factors motivating Americans to buy homes,” said NAHB Chairman Bob Jones, a builder and developer in Bloomfield Hills, Mich. “But buyers can still take advantage of today’s low interest rates and competitive prices to get a home they may not have been able to purchase just a few years ago.”
Besides mortgage interest rates that have been hovering at near-record lows, homes in many markets have become more affordable. Prices have moderated from the highs of the housing boom that occurred in most of the country, especially in major markets where they had increased significantly.
Today’s new homes are also built to be much more energy efficient than homes constructed a generation ago, making them more affordable to operate. New homes are designed to support modern lifestyles with open floorplans, flexible spaces, improved safety features, and low-maintenance materials.
Consumers who are thinking about buying a home should not count on interest rates or prices staying at current levels, however. Mortgage rates are sensitive to market conditions, and even a slight increase can push monthly payments beyond a family’s budget. As the country recovers from the recession and people stabilize their financial situations, NAHB economists expect that home prices will begin to increase by 2011.
NAHB’s home buyer brochure “Opportunity Knocks for Home Buyers” describes many of the opportunities in today’s market, as well as the long-term financial benefits of homeownership. It provides examples of how interest rates affect monthly mortgage payments and the typical federal tax savings over the first five years of homeownership. The brochure can be downloaded from NAHB’s web site at: www.nahb.org/homebuyerbrochure.
The home buyer tax credit is still available for eligible home buyers who had a signed sales contract by the April 30 deadline and who close by June 30, 2010, as well as for qualified members of the military, foreign service and intelligence communities, who have until April 30, 2011, to sign a contract. For more information, go to www.federalhousingtaxcredit.com.
“The home buyer tax credit was just one of many factors motivating Americans to buy homes,” said NAHB Chairman Bob Jones, a builder and developer in Bloomfield Hills, Mich. “But buyers can still take advantage of today’s low interest rates and competitive prices to get a home they may not have been able to purchase just a few years ago.”
Besides mortgage interest rates that have been hovering at near-record lows, homes in many markets have become more affordable. Prices have moderated from the highs of the housing boom that occurred in most of the country, especially in major markets where they had increased significantly.
Today’s new homes are also built to be much more energy efficient than homes constructed a generation ago, making them more affordable to operate. New homes are designed to support modern lifestyles with open floorplans, flexible spaces, improved safety features, and low-maintenance materials.
Consumers who are thinking about buying a home should not count on interest rates or prices staying at current levels, however. Mortgage rates are sensitive to market conditions, and even a slight increase can push monthly payments beyond a family’s budget. As the country recovers from the recession and people stabilize their financial situations, NAHB economists expect that home prices will begin to increase by 2011.
NAHB’s home buyer brochure “Opportunity Knocks for Home Buyers” describes many of the opportunities in today’s market, as well as the long-term financial benefits of homeownership. It provides examples of how interest rates affect monthly mortgage payments and the typical federal tax savings over the first five years of homeownership. The brochure can be downloaded from NAHB’s web site at: www.nahb.org/homebuyerbrochure.
The home buyer tax credit is still available for eligible home buyers who had a signed sales contract by the April 30 deadline and who close by June 30, 2010, as well as for qualified members of the military, foreign service and intelligence communities, who have until April 30, 2011, to sign a contract. For more information, go to www.federalhousingtaxcredit.com.
Wednesday, May 19, 2010
Optimistic Outlook for Housing, But Challenges Remain
10 States to See Normalized Housing Production Numbers Within 18 Months
May 19, 2010 - Economists participating in yesterday’s NAHB Construction Forecast Conference Webinar agreed that the housing market is on the road to recovery, but cautioned that several factors could contribute to a bumpy ride in the coming months.
“Home buyer tax credits clearly did their job and got people back into the marketplace,” said NAHB Chief Economist David Crowe, who also served as moderator of the two-hour webinar.
With the expiration of the tax credits in April, Crowe said the housing momentum is being carried forward by low interest rates, pent up household formations, stabilizing prices and budding employment growth.
However, many factors continue to drag on housing at this time – including the critical shortage of credit for new and existing projects, competition from short sales and foreclosures and regional economic disparities.
The availability of acquisition, development and construction (AD&C) financing remains a major concern as the industry moves forward, Crowe said. “Builders still tell us that credit is extremely tight. Banks are saying not so much. That gap is an indication that something is broken, at least when it comes to residential construction.”
NAHB is forecasting 552,000 single-family starts in 2010, up 25 percent from last year’s 445,000 level, which was the lowest annual output since 1959 when the government began collecting this data.
Suffering from an acute shortage of available financing and a significant shadow inventory of homes lost to foreclosure that are competing against normal inventory, Crowe said that multifamily housing starts are expected to lose further ground this year, falling 18 percent to 93,000 units, before rebounding to 150,000 units in 2011.
Crowe anticipates that nationwide home prices will remain flat this year and post a modest increase in 2011 and that mortgage interest rates will continue to stay low, barely breaking 6 percent by the end of this year, and not rising much above that level through 2011.
The road back to normal levels of residential construction will be longer for some states than others. By the end of 2011, the top 20 percent of the states will see their production levels back to normal. Those states include Texas, Oklahoma, Montana, Wyoming, Tennessee, Louisiana, Mississippi, Alabama and Arkansas and Kansas. The previous boom markets in California, Arizona, Florida and Nevada, along with the Great Lake states of Michigan, Indiana, Ohio, Illinois and Wisconsin that were hit by deep cuts in auto production and manufacturing, will be the last ones to recover.
Housing Demand Reflects Job Growth
Like his co-panelists, Mark Zandi, chief economist of Moody’s Analytics, said that housing will improve as the job market does. He forecast that the economy will average monthly job gains of 125,000 this year, 250,000 in 2011 and 300,000 in 2012.
Mirroring anticipated employment growth, Zandi expects GDP to rise 3 percent this year, approximately 4 percent in 2011 and closer to 5 percent in 2012.
The key factor driving housing demand is jobs, said Zandi. “We’re not going to get home sales unless we have jobs. Here the prospect is good. Business balance sheets are in good shape and improving rapidly. These are pre-conditions for better job growth and we should see the job market steadily gain traction.”
Zandi forecast that overall housing starts will total 700,000 units this year, close to 1 million in 2011 and about 1.7 million by 2012, which he describes as close to trend and consistent with demographics in a normal functioning economy.
Driven largely by the high foreclosure rate, Zandi expects that home prices will continue to fall modestly in 2010, down about 5 percent on a national average. He calculates that the difference between supply and demand is approximately 750,000 units annually, and it will require until the end of 2011 to work off this extra inventory.
“The good news,” he said, is “as the job market improves, so will household formations and demand. So I anticipate we will work off the excess inventory more quickly than the two-year period.”
He added that most of the housing surplus is regionally concentrated in Florida, around Atlanta, along the South Carolina coast, in Las Vegas, Phoenix, and Tucson and in the central valley of California.
Consumers Fuel Recovery
Taking the most bullish approach to the ongoing recovery, Chris Varvares, president of Macroeconomic Advisers, LLC, forecast that GDP will rise 3.7 percent this year and that housing starts will total 750,000, well above the Blue Chip Economic Indicators consensus of 690,000.
“Personal consumption expenditures are making a very solid recovery,” said Varvares. “Residential investment is going from a drag to a contributor. The difference between our forecast and the consensus is the strength in personal consumption and housing.”
Although the huge number of foreclosures on the market are accounting for about 300,000 to 400,000 fewer starts than there otherwise would be, Varvares said the fundamentals still point to a solid trajectory for housing.
“With prices stabilizing, demand is picking up and we expect builders to respond. By the end of 2011, we expect about 1.2 million housing starts. This suggests we can have recovery in starts this strong while simultaneously working down excess housing inventory.”
The panelists were in unanimous agreement on a number of areas – the Federal Reserve will likely continue to keep interest rates near rock bottom levels at least through the end of the year; the chance of a double dip recession is extremely slim; and policymakers will need to take action within the next two years to increase revenues and cut spending to rein in the burgeoning structural deficit.
May 19, 2010 - Economists participating in yesterday’s NAHB Construction Forecast Conference Webinar agreed that the housing market is on the road to recovery, but cautioned that several factors could contribute to a bumpy ride in the coming months.
“Home buyer tax credits clearly did their job and got people back into the marketplace,” said NAHB Chief Economist David Crowe, who also served as moderator of the two-hour webinar.
With the expiration of the tax credits in April, Crowe said the housing momentum is being carried forward by low interest rates, pent up household formations, stabilizing prices and budding employment growth.
However, many factors continue to drag on housing at this time – including the critical shortage of credit for new and existing projects, competition from short sales and foreclosures and regional economic disparities.
The availability of acquisition, development and construction (AD&C) financing remains a major concern as the industry moves forward, Crowe said. “Builders still tell us that credit is extremely tight. Banks are saying not so much. That gap is an indication that something is broken, at least when it comes to residential construction.”
NAHB is forecasting 552,000 single-family starts in 2010, up 25 percent from last year’s 445,000 level, which was the lowest annual output since 1959 when the government began collecting this data.
Suffering from an acute shortage of available financing and a significant shadow inventory of homes lost to foreclosure that are competing against normal inventory, Crowe said that multifamily housing starts are expected to lose further ground this year, falling 18 percent to 93,000 units, before rebounding to 150,000 units in 2011.
Crowe anticipates that nationwide home prices will remain flat this year and post a modest increase in 2011 and that mortgage interest rates will continue to stay low, barely breaking 6 percent by the end of this year, and not rising much above that level through 2011.
The road back to normal levels of residential construction will be longer for some states than others. By the end of 2011, the top 20 percent of the states will see their production levels back to normal. Those states include Texas, Oklahoma, Montana, Wyoming, Tennessee, Louisiana, Mississippi, Alabama and Arkansas and Kansas. The previous boom markets in California, Arizona, Florida and Nevada, along with the Great Lake states of Michigan, Indiana, Ohio, Illinois and Wisconsin that were hit by deep cuts in auto production and manufacturing, will be the last ones to recover.
Housing Demand Reflects Job Growth
Like his co-panelists, Mark Zandi, chief economist of Moody’s Analytics, said that housing will improve as the job market does. He forecast that the economy will average monthly job gains of 125,000 this year, 250,000 in 2011 and 300,000 in 2012.
Mirroring anticipated employment growth, Zandi expects GDP to rise 3 percent this year, approximately 4 percent in 2011 and closer to 5 percent in 2012.
The key factor driving housing demand is jobs, said Zandi. “We’re not going to get home sales unless we have jobs. Here the prospect is good. Business balance sheets are in good shape and improving rapidly. These are pre-conditions for better job growth and we should see the job market steadily gain traction.”
Zandi forecast that overall housing starts will total 700,000 units this year, close to 1 million in 2011 and about 1.7 million by 2012, which he describes as close to trend and consistent with demographics in a normal functioning economy.
Driven largely by the high foreclosure rate, Zandi expects that home prices will continue to fall modestly in 2010, down about 5 percent on a national average. He calculates that the difference between supply and demand is approximately 750,000 units annually, and it will require until the end of 2011 to work off this extra inventory.
“The good news,” he said, is “as the job market improves, so will household formations and demand. So I anticipate we will work off the excess inventory more quickly than the two-year period.”
He added that most of the housing surplus is regionally concentrated in Florida, around Atlanta, along the South Carolina coast, in Las Vegas, Phoenix, and Tucson and in the central valley of California.
Consumers Fuel Recovery
Taking the most bullish approach to the ongoing recovery, Chris Varvares, president of Macroeconomic Advisers, LLC, forecast that GDP will rise 3.7 percent this year and that housing starts will total 750,000, well above the Blue Chip Economic Indicators consensus of 690,000.
“Personal consumption expenditures are making a very solid recovery,” said Varvares. “Residential investment is going from a drag to a contributor. The difference between our forecast and the consensus is the strength in personal consumption and housing.”
Although the huge number of foreclosures on the market are accounting for about 300,000 to 400,000 fewer starts than there otherwise would be, Varvares said the fundamentals still point to a solid trajectory for housing.
“With prices stabilizing, demand is picking up and we expect builders to respond. By the end of 2011, we expect about 1.2 million housing starts. This suggests we can have recovery in starts this strong while simultaneously working down excess housing inventory.”
The panelists were in unanimous agreement on a number of areas – the Federal Reserve will likely continue to keep interest rates near rock bottom levels at least through the end of the year; the chance of a double dip recession is extremely slim; and policymakers will need to take action within the next two years to increase revenues and cut spending to rein in the burgeoning structural deficit.
Subscribe to:
Posts (Atom)
