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Three economists, more opinions

HOUSEHOLD REBOUND? Recovering household formation signals venting of pent-up demand for normalcy. Sources: UBS, Bureau of Census Housing Vacancy Survey

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Three economists from three different organizations shared one view during the National Association of Home Builders, or NAHB, fall construction forecast: The housing downturn isn’t going to end until the job market improves.

The Oct. 27 webinar, moderated by the NAHB’s chief economist David Crowe, tried to cast an uncertain future in a positive context, at least in terms of housing demand. But each expert had a different take on how the next few quarters will play out, given the unpredictability of government spending and home foreclosure rates.

Maury Harris, chief U.S. economist at UBS Securities, put the recovery in a political context with some forecasting of the Nov. 2 election. Harris felt certain enough to predict that, if Republicans gained control the House of Representatives—which they did—“The small business community is going to feel better about the course of [action] in Washington. We’re going to see a pickup in confidence.”

Whether this translates into more hiring or not remains to be seen. UBS is predicting a 9% unemployment rate at the end of 2011, with 2.7% GDP growth in 2010 and 2011. Consumer spending is rising, Harris noted, and so is the personal saving rate. Not a bleak scenario, but with jobs as a wild card, the economists focused more on the rental market, home affordability and pent-up demand for housing than a recovery timeline.

Rental housing availability is tightening, Harris said, and rents on new leases are starting to go up. The NAHB’s Crowe said he had heard scattered reports of scarce rentals.

“The concern now is that there isn’t enough retail property for all those people who’ve ruined their credit and can’t afford to buy,” he said.

Although multi-family construction made a surprise rebound mid-year, these units will not be ready for the current population of apartment seekers.

But there is good news for those who stayed clear of the foreclosure pit. Housing is very affordable, Crowe said, although the selection may be limited; with only 200,000 new unsold homes on the market, inventory has not been this low since 1968.

“Builders are being very careful. They’ve reduced their [building of] speculative homes,” Crowe said.

All three economists believed that pent-up demand for housing would eventually burst through. Crowe estimated “the gap” of unmet housing needs—people living with parents or doubled up—at 500,000 to 1.5 million households.

“We’ve got a lot of people right on the edge. They’re ready to move out,” he said.

Eric Belsky of the Harvard Joint Centers for Housing drilled down into the demographics of the demand for new homes, which will come largely from immigration (though at pre-1990s levels) and Echo Boomers (the 20-somethings). He estimated new household growth in the country to fall in the range of 11.8 million to 13.8 million between 2010 and 2020. Roughly two-thirds of that number will result in new housing demand, the Harvard Center research shows.

Whether demand translates into purchasing is an arrow that points back to job growth the great unknown in everyone’s forecasts. Employment is going to be the key to the rebound, according to Belsky. But he also noted that the market will be primed for new buyers.

“When people come out of their bunkers, they’ll come into a [housing] market that’s remarkably affordable,” he said. “And that’s likely to hold for the better part of next year and beyond.”


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