The Official Online Weekly Newspaper of NAHB
On the long road back to normal from the most devastating recession since the Great Depression, the nation’s beleaguered housing industry should see modest improvement in 2012 and stronger conditions in 2013, although housing has yet to be adequately recognized by the political leadership in Washington for its potential to accelerate the disappointing pace of job creation and economic growth, according to participants in a Jan. 11 NAHB webinar on the outlook for the new year.
The webinar coincided with new polling by NAHB showing that politicians may be out of step with the voting public on policies supporting homeownership.
Majorities of the Democratic, Republican and Independent voters responding to the survey agreed that dealing with the mortgage and foreclosure crisis is key to stabilizing the economy. In the meantime, a majority felt that the condition of the housing market has been staying about the same — neither improving nor getting worse.
(A related story in this issue of Nation’s Building News covers the complete findings from the NAHB survey.)
Making it tougher to address the housing concerns of the electorate, the standoff between Democrats and Republicans is likely to continue when Congress reconvenes this month, and as the year progresses attention will increasingly turn to the November elections.
“The economic downturn will be the central issue in this presidential election year, and the political divide over how best to improve the economy will shape the political process in Washington,” said NAHB CEO Jerry Howard.
A Polarized Environment
“We are operating obviously in a very polarized environment on Capitol Hill,” said NAHB’s chief lobbyist, Jim Tobin.
“One issue where there does seem to be bipartisanship is over homeownership,” he said, referring to the latest NAHB poll of voters.
However, Congress has largely been ignoring the situation — with many arguing that now is the time for the federal government to disengage from long-standing policies in support of homeownership — but “they will do it at their own political peril if they continue down this road,” Tobin said.
NAHB's top legislative issue for 2012, he said, will be to end the “absolute dearth of credit for the construction of new homes.”
Many local markets now need new residential construction, “but community banks are not being allowed to lend to builders who can show a viable project.”
“This has been a frustrating issue for us,” he said, but progress was made with the introduction in the House last year of H.R. 1755, which “would let the regulators untie the hands of America’s banks to work with builders to get viable projects started again to get the country building again and creating jobs.”
A companion bill is being developed in the Senate, he said, and the House bill now has 85 cosponsors.
(To read H.R. 1755, go to http://thomas.loc.gov and enter the bill number in the box at the center of the page.)
Among other legislative priorities for NAHB:
- Housing finance reform
“Preserving a federal role for housing finance is vital for the continuation of 30-year, fixed-rate mortgages,” he said.
“At the end of the day, the conversation has to come back to whether lawmakers see a role for the federal government in the housing finance system,” he said.
Some bills are likely to be introduced in the House this year — perhaps direct attacks on Fannie Mae and Freddie Mac or proposals to create a private-sector mortgage market — but movement is not expected in the Senate, which will be laying the groundwork for legislation after the elections.
- Tax reform
“There is an impetus to do this,” he said, and broad support for making the tax system simpler and reducing the tax burden, “but when you layer in that this might mean the elimination or reduction of the mortgage interest deduction, that support shifts significantly.”
In the NAHB polling, two-thirds of voters started out favoring the idea of lowering federal income tax rates for individuals, by a difference of 38 percentage points over those who opposed it.
But if lowering tax rates meant that deductions — including for the home mortgage interest deduction — would be reduced or eliminated, 52% were in opposition to the idea, 12 percentage points higher than those who still favored it.
The Super Committee that was charged by Congress to find ways to cut the deficit over the next 10 years indicated that housing was on the table, Tobin said, putting housing for the first time “squarely in the crosshairs of deficit cutters.”
- Regulatory oversight
Tobin said that NAHB would continue to work with regulatory oversight agencies to reduce the costly and burdensome regulations that are stifling a housing recovery.
“Housing is one of the most heavily regulated industries,” he said. Even today, when it is not building as many homes as in the past — it must contend with regulations from the Environmental Protection Agency, the U.S. Army Corps of Engineers, the Occupational Safety and Health Administration and other agencies.
- Other critical issues
These include reforming the home appraisal system, removing the 20% downpayment requirement from the Qualified Residential Mortgage, finding innovative ways to get foreclosed homes off the market and improving housing to stimulate job growth and the economy. “We need to see good, strong job creation numbers and get people feeling good about the economy again,” Tobin said.
Favorable Economic Signs
Looking at just where housing is headed this year, NAHB Chief Economist David Crowe said that, “We are starting 2012 with the same amount of optimism we started in 2011.”
Unfortunately, he said, 2011 turned out to be significantly weaker than projected — buffeted by a range of factors, including a run-up in energy prices, slumping employment growth, a big dive in consumer confidence, an unusually harsh winter at home and a disastrous tsunami in Japan, and the unsettling spectacle of Congress coming to a standstill over raising the deficit ceiling.
This year has begun on a more auspicious note, with economic growth, job creation, unemployment claims, consumer confidence, home foreclosures and home sales all showing favorable signs by the end of 2011, he said.
“While this won’t be a roaring year, there will be an improvement,” Crowe said.
Perhaps most reassuring is that the economy has begun to emerge from its demographic doldrums, he said, with more growth in the number of households.
From a traditional average growth rate of a little over 1%, annual household formations faltered during the recession and its weak aftermath, even declining into negative territory during a few quarters.
Most recently, in the third quarter of 2011, household formations rose above the traditional historical rate of increase, suggesting a return to a normal pace of household formations, particularly among young people.
Crowe calculated that there is a backlog of as many as 2 million households that have yet to be formed because of the downturn. Those households are now beginning to materialize as young adults who resided with parents or friends when the economy was bad now find themselves on the threshold of moving out and renting or buying a home.
Trends in the annual percentage change in home owners and renters point to a significant share of new households moving into rental housing.
Crowe added that housing fundamentals remain favorable.
Mortgage interest rates are low, and even as they creep up a bit as the economic recovery gains strength and there is more demand for credit, rates should be relatively low through the end of 2012.
House prices have returned to their normal ratio of about 3.2 times income, down from 4.7 at the peak of the housing boom in 2005.
Improving Local Markets
The current housing recovery is deriving its strength from local housing markets that are added to the NAHB/First American Improving Markets Index (IMI) when they have shown six months of improvement in employment, single-family housing permits and home prices.
(A story on the January IMI appears in this issue of Nation’s Building News.)
“A lot of places are doing better than the national average and we need to focus on that,” said Crowe.
The most recent IMI, he said, shows that the recovery is “quite diverse, and it is happening in a lot of places, not just the middle of the country where it started."
Twelve metropolitan areas were on the index when it was initiated in September; the number has now grown to 76.
As the recovery continues to unfold, and employment and consumer confidence show further improvement, home purchases will start picking up again, Crowe said, which will lead to more construction.
He forecasted that growth of the gross domestic product, falling back some from a “pretty good” pace for the final quarter of 2011, will be in the 2.2%-2.3% range during 2012 and climb above 3% in 2013.
Single-family home starts are projected to climb to 501,000 in 2012, up 17% from 2011, which could turn out to be the worst year on record.
Reflecting healthy growth in the number of renters, about 178,000 multifamily starts are expected for 2011, which would represent a 56% jump.
Multifamily production is forecasted to climb another 17% in 2012, reaching the 208,000-unit level.
And residential remodeling of owner-occupied properties is “doing nicely,” Crowe said, and poised to register a 12% gain from the fourth quarter of 2011 to the fourth quarter of 2012.