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MHI FOCUS HousingMarketMoving Into Recovery BY Richard "Dick" Jennison When David Crowe, chief economist for the National Associaton of Home Builders (NAHB), started his keynote presentation at the 2012 Na- tional Congress & Expo for Manufactured and Modular Housing by saying, "We at NAHB be- lieve that on the whole, we can expect a slow and gradual recovery in housing starts, home sales, and the overall housing market in 2012," he cap- tured the mood that dominated the two-day meeting in Las Vegas. As I noted in last month's column, manufactured and modular housing in- dustry veterans in attendance were noticeably more optimistic and much more positive in their outlook for our industries in 2012. Crowe pointed to numerous fundamentals that remain positive for housing, including demo- graphic trends, such as pent-up household de- mand which is ramping up and echo-boomers now heading into their prime household formation ages. He also predicted that favorable mortgage rates are not expected to move higher than 5 per- cent by end of 2012. He pointed to other indica- tors of the positive outlook for housing by noting that more than 100 local markets are currently listed onNAHB's FirstAmerican ImprovingMar- kets Index and the fact that house price-to- income ratios have now returned to its historical average of about three-to-one versus the nearly five-to-one at the height of housing boom. NAHB estimates that new home sales are ex- pected to climb from record lows of 305,000 units in 2011 to 357,000 this year and 505,000 in 2013. Existing single-family sales are expected to follow, rising from 3.8 million last year to 4.4 million in 2012 and 5.4 million next year. New home starts are also moving in same upward di- rection, with single-family housing production in- creasing from434,000 units in 2011 to 503,000 in 2012 and 660,000 in 2013. Crowe cautioned that with the economy still struggling to establish a robust recovery, "NAHB believes that there will be a slow and gradual re- covery in the housing market in 2012." JUNE 2012 22 THE JOURNAL Further Indications of Recovery Reinforcing Crowe's optimism, Lawrence Yun, NAR's chief economist, predicts that 2012 will be a year of recovery for housing. "Pending home sales increased in March 2012 and are well above a year ago." NAR's pending home sales index, a forward- looking indicator based on contract signings, rose 4.1%to 101.4 inMarch froman upwardly revised 97.4 in February. The index is now at the high- est level since April 2010 when it reached 111.3. "First-quarter sales closings were the highest first-quarter sales in five years," Yun stated. "The latest contract signing activity suggests the second quarter will be equally good." "The recovery is happening, though not at a breakout pace, but we have seen nine consecu- tive months of year-over-year sales increases," said Yun. "Existing-home sales aremoving up and down in a fairly narrow range that is well above the level of activity during the first half of last year. The housing market has clearly turned the corner," Yun stated. Climbing Home Prices The Kiplinger Letter also reports that "home prices should finally begin a slow climb by midyear or so, as buyers become convinced that the bot- tomfor prices has been reached. Between now and then, national average pricesmay drop a fewmore percentage points but will likelymake that back by the end of the year." Home prices already have been rising in 38 states, with the problem states of California, Ne- vada, Florida, Arizona and Michigan acting as a drag on the market. The increase in those states will help buoy consumer spending by homeown- ers, who have been waiting for a turnaround to stabilize household balance sheets hammered by a 33% fall in home prices since 2006. According to housing market-watcher Fiserv, average U.S. home prices – down by a third since 2006 and still falling – will rise almost 4%a year for the next five years. The forecast is based on an analysis of leading home price indexes byMoody's Analytics. Homeownership Now Lowest in 15 Years According to recent reports by the U.S. Cen- sus Bureau, the share of U.S. households who rent their home reached a fifteen year high, while home ownership fell to its lowest rate in 15 years. The percentage ofAmericans who own their home now stands at 65.4%during the first threemonths of 2012, the lowest rate since 1997 and down from the peak of 69.2% reached in 2004. At the same time, both rental and homeown- ership vacancies are down, generally a positive in- dication for the housing market, according to Census. Increasing household formations (usually a product of improving jobs picture), rising real incomes, steadily upward payroll growth and a bullish stock market are all contributing to eco- nomic expansion which will help the housingmar- ket recover in the coming months. Industry Trends Up Recent industry statistics forMarch 2012 show that the manufactured industry, while down somewhat from the impressive numbers of January and February 2012, were nonetheless moving in a positive direction, with eight consecutive months of production increases. Shipments for March were up 15.7% from a year ago, with the number of floors shipped up 13.8% from March 2011. This compares to shipment increases of 42.1% in January 2012 and 43.5% in February, as well as floor increases of 38.3% in January 2012 and 38% in February. Cumulative 2012 industry produc- tion now totals 12,799 homes for the first quarter, up 31.6% from cumulative industry production of 9,723 homes during the first quarter of 2011. That's not to say that the path to a stronger housing market will be easy. There remain many challenges – rising foreclosures; tight lending standards; difficul- ties in obtaining accurate ap- praisals – that will pose "bumps in the road." And disappointing job growth in the \ 23