As the National Association of Home Builders uses the recess period on Capitol Hill to build support for legislation that would ease restrictions on acquisition, development, and construction (AD&C) credit for new-home construction, one obvious contingency question focuses on who, exactly, might buy these new homes once they’re built.
The answer usually is that first-time homebuyers are prime prospects, particularly as household formations, which were delayed from 2007 to 2009, begin to increase, and as rental rates increase, thanks in part to demand for rentals driven by families who lost their homes to foreclosure. Also, prices on new and existing homes have dropped, particularly in markets rife with foreclosures, whose prices are invariably deeply discounted.
NAHB has been citing these factors for a while now and, as it continues to carry the homebuilding flag downfield, recently excerpted highlights of a Fortune magazine article, posted on March 28, that cites expert opinion on why the inventory of new homes in the U.S. is too low. The Fortune piece focuses on the combined effect of a rise in the rental market (and commensurate rise in rental rates), home-sales price drops of 30% to 55%, and home construction paced at about a quarter of what it was in 2006.
Inching toward greater demand?
One source in the story, Mike Castleman, founder and CEO housing researcher Metrostudy, tells the magazine, “The talking heads who are down on real estate will hate to hear this, but America needs to build a lot more houses. And in most markets the price of new homes is fixin’ to rise, not fall.”
Even the tighter credit standards of today are unlikely to hinder home sales if the overall economic recovery remains on track, added Moody’s Analytics’ chief economist, Mark Zandi. “The credit standards are now at about historical levels, excluding the bubble period,” he said. “We saw prices rising with fundamentals in those periods, and it will happen again.”
The Fortune piece does zero in on a larger fundamental, however – the condition of the overall economy: “Of course, home prices are low and home construction is weak for a reason: incredibly low demand. For our scenario to play out, America will need a decent economy, with job creation and consumer confidence continuing to claw their way back to normal.”
Barring a broad economic setback, the expectation among Zandi, Castleman, and even economist Karl Case, of the S&P/Case-Shiller Home Price indices, is that housing-price increases will outpace inflation over the next few years. And a recent Metrostudy report on prospects for housing starts points to an overall upward trend in the first quarter of this year, based on data the research group has collected and analyzed in advance of Census Bureau figures due to be released next week.
These topics, not surprisingly, will be explored by Zandi, NAHB chief economist, David Crowe, and the association’s assistant vice president for forecasting and analysis, Robert Denk, during the upcoming NAHB Spring Construction Forecast Webinar. The webinar fee is $29.95 for NAHB members and homebuilders associations, $49.95 for nonmembers. Click here for more information.
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