The Associated Builders and Contractors (ABC) held an online news conference in June to provide a mid-year construction update. Chief economists from three organizations shared statistics and their interpretations of the market. In addition to the ABC’s Anirban Basu and the American Institute of Architects’ Kermit Baker, David Crowe from the NAHB talked specifically about residential construction.
Crowe gave numbers in “glass half full versus glass half empty” categories. He tempered both good and bad circumstances with the belief that a housing market recovery is being partially suppressed by simple pessimism. Below, he lists reasons why things should be looking up.
- Mortgage rates are the lowest they’ve been in years and are predicted to remain under 6 percent at least throughout 2012.
- Housing prices have dropped, making some prognosticators nervous, but Crowe says this is good in terms of people being willing to invest in home ownership again. The sweet spot for pricing is three times the median income and most states are at that point again.
- Those first two reasons combine to make house affordability very high. “Right now, a person with a median income can afford 75 percent of all houses sold,” Crowe notes—so people should be buying.
- The inventory of new homes available for sale is low–only 67,000 throughout the U.S. However, there are many existing homes on the market primarily because of foreclosures and defaults.
- A pent-up demand is not being considered. The typical 1 percent to 1.5 percent rise in new households hasn’t happened in the past few years. Kids remain at home, people continue to rent, and divorce is put off for financial reasons. “There’s a shadow demand out there that’s a potential for absorbing all existing inventory” Crowe says.
Crowe also theorized on why the residential market remains sluggish. Primarily, he cites the new flood of foreclosures, which were held back last year, along with current mortgages in distress making lenders nervous. Right now, consumers believe they won’t get a good price for their existing home and that financing will be difficult for a new home. Plus, Crowe adds, negative reporting by the media has tanked confidence in all sectors. Once that confidence is restored, Crowe hopes residential construction will be on the road to recovery.
