Issue link: http://read.dmtmag.com/i/91455
Editor's Note Housing Still Far From Normal Reasons for optimism seem to support skepticism instead. BY KIM PHELAN It's been a long time since I've watched "Tombstone," but the im- mortal line of Doc Holliday (played by Val Killmer) comes ringing true for the housing sector today: "There is no normal life, Wyatt. There's just life." Toward the end of October, I listened to Dr. David Crowe present his views about the housing sector during the annual conference of the Construction Writers Association in Washington, D.C. Although Crowe, who is the chief economist of the National Association of Home Build- ers, portrayed his general outlook as optimistic, I'm afraid by the time he finished his talk I was feeling rather nonplussed and even a little doubtful. One of the great success stories of residential building today is the mul- tifamily leg of housing's three-legged stool, remodeling and single-family of course rounding out the balance. Multifamily is perhaps Crowe's big- gest reason for a bullish view on housing construction – members of NAHB involved in multifamily build- ing are quite optimistic he said. Yes, it had its pit like the other components, but not as deep, and the cause was more related to job losses than to overproduction, as in the case of single family. What Crowe made clear is that multifamily's upswing is rooted in what I find to be a sad trend in the U.S.: the rise of rental and the demise of homeownership, a move- ment that characterizes virtually all of the near-800,000 newly formed households this year, he said, and a trend that will continue for some time to come. Home affordability and access to credit are the obvious hurdles for young people today. Not that there's anything unusual about those fac- tors – it was the same for you and me, right? It took some discipline to save up 20 percent for a downpayment and to control how we used credit cards. It was, of course, when, "if you could fog a mirror you could get a mortgage," that folks started getting that phony sense of normal – and we now know how well that played out. Nevertheless, it does make me sad that because the credit standards pendulum has swung to such ex- tremes, most young adults may not have the option to purchase for a very long time. And while interest rates are extraordinarily low and will continue to be low, the price of mortgages simply doesn't matter – it's the access to them that has barricaded newly forming households from ownership. On the single family side, which Crowe says is now 39 percent of "nor- mal," (early 2000s) soft, slow recovery is taking place, and at varying rates depending on the state in which you live – in other words, it's a highly scattered, regionalized recovery phenomenon. While the housing tax credits provided sparks, the economy was so weak that they didn't create the desired momentum, "and so we sunk back down again," said Crowe, "and now we're crawling up." Over the last three quarters the U.S. has finally begun to see housing as a major contributor to the change in growth, but here are Crowe's reasons for that: (1.) Housing has finally taken hold, making some decent but not great improvement; and (2.) the rest of the economy has been lousy. A few of the factors that continue to hinder single-family housing's recovery include unaligned appraisal values with contract prices, foreclo- sures that are still double the rate that would be considered "normal," and also availability of developed lots. "Even if there was demand, and even if someone could qualify for a mort- gage, even if appraisals were correct, there's a limit to the lots available," said Crowe. After 2008, "the pipeline of additional property was stopped completely," sinking to almost noth- ing during the recession. By this time I was not feeling so op- timistic about housing anymore. And then Crowe shared the real concerns that are tempering his optimism! Those included, not surprising, the uncertainties surrounding the fiscal cliff and concerns of how government spending will affect growth of the economy; the Dodd-Frank regulations that are affecting financial institutions' willingness to lend; plus tax reform as well as GSE reform (Government Sponsored Enterprise, such as Fannie Mae and Freddie Mac), which Crowe says will almost certainly increase the cost of mortgages, but no one knows by how much or when. I'm glad the housing sector is inch- ing back, but I don't sense that it's anything to get giddy about for some time to come. I hope you'll share plenty of your dealership's news and views plus conditions in your region when you receive CED's Business Out- look Survey this month by mail and e-mail. Thanks for reading. KIM PHELAN (kphelan@aednet.org) is the executive editor of Construction Equipment Distribution and director of programs for AED. November 2012 | Construction Equipment Distribution | www.cedmag.com | 7