October - December 2012
November 2012 Housing Commentary
By Dalton Alderman and Urs Buehlmann
November housing construction data was mixed-starts and completions declined and permits indicated a moderate increase. Generally, this is to be expected as we go into the winter season.
New and existing house sales, and permits, recorded modest increases- once again these indicators are significantly below long-term averages. The numbers of available new and existing houses for sale continues to decline, are at historically low-levels, and are positives for the construction market. Interest rates remain at historically low-levels but we still have stricter lending standards and declining real incomes. These might be contributing factors in the continued decline of first-time house buyers (in absolute numbers). The remodeling sector continues to be projected as a promising sector; however, recent data suggests stagnation in remodeling.
Projections for 2013 housing starts suggest a very modest increase, in numbers, as compared to 2012. Total start estimates range from 850 thousand to 1.19 million and the range for single family starts are 596 to 820 thousand units. We hope starts do rise, as increases are a boost to the industry and the economy, no matter how small.
We have included several slides that pertained to debt and declining real incomes. Incomes are critical at this point; with prices increasing in conjunction with stricter lending standards these may become a drag on housing even with record high home affordability. Also, how will consumer psychology be affected by the a decline in real incomes? We do not know if purchasing psychology will be affected, but we should have indicators by 2013s end. Government debt is a different matter at this point in time; it may not directly affect the housing market now, but in the future it might. Debt will have to be dealt with sometime as excessive debt is detrimental to economic growth. This has been researched by Economists Carmen Reinhart and Kenneth Rogoff16 (and others), who demonstrated that when government debt exceeds 90% of the country's GDP, the servicing of debt has a negative impact on a country's economic growth rate.
The housing market continues to heal and most projections for 2013 indicate modest increases in starts. In regards to a robust U.S. housing market, our outlook remains unchanged- there remain too many potential negative macro-factors at this point in time for a robust housing recovery. Why?
- Consumer confidence while rising, most report it is fragile,
- a lack of well-paying jobs,
- a sluggish economy
- declining real median annual household incomes,
- strict home loan lending standards, and
- new financing and banking regulations to be implemented in the near future.