Overall, the report
is cautiously optimistic that the worst has passed in the housing market, and
that housing is likely to make a small but positive contribution to GDP growth
in 2012, and improve further over time.
This is a matter of concern not only to homeowners, but firms, workers,
investors, and governments, as the housing market is large enough to have a major effect on the overall economy.
However, there
continues to be a "chicken-and-egg" conundrum: the housing market
won't improve until more jobs are created, but job creation depends on an
economic recovery that won't fully take-off until the housing market
improves. Over 1.4 million jobs directly
tied to housing have been lost, and many more have been lost as an indirect
consequence. In addition, the
"wealth effect," the tendency of people to spend more as their assets
grow and less as they shrink, has reduced spending, since housing-based wealth
has fallen by over $8 trillion.
Below are some key
takeaways from the report, organized under the intimately related headings of
supply, demand and price.
Supply
· The inventories of new and used houses for sales stand at
around 6.0 months of supply, which is considered a balanced market. However, there is an "off-market"
inventory of 1.2 million unsold homes, which could further force prices down
when it comes onto market. For now,
though, prices appear to have stabilized at a level at or below where they were
before the boom.
· Single family starts were up 16.6% in the first quarter
year-over-year.
Demand
· Thanks to record low interest rates and modestly priced
real estate, mortgage payments are now more affordable than rent in most areas
- indeed, housing is as affordable as it has ever been. As recently as 2006, the monthly cost of a
mortgage was nearly 50% more expensive than rent payments. However, strict lending rules have sapped
some demand for financing.
· Due to a sluggish employment market, household formation
fell far below trend in the last few years, but pent-up demand will inevitably
be released as jobs become more plentiful.
Net immigration, though, fell in the past few years, largely because of
increases in emigrants leaving the US and a rise in the number of deportations. It's unclear if immigration will bounce back
to past levels, but in all likelihood the US will continue to absorb large
numbers of newcomers in future years.
· Average household growth of 1.18 million from 2010-2020
is predicted, using quite conservative assumptions, and not including any
pent-up demand, which is likely significant.
Price
· Sales of distressed properties are depressing
prices. Homeowners are very reluctant to
sell, however, if they are underwater on their mortgages -
"underwater" means the value of the house is worth less than the
amount of the related mortgage - which also reduces home renovation outlays,
the bulk of which occur soon after someone buys a new house. This is a problem, since more than one in
every five mortgages are underwater - 11.1 million, according to one
estimate. Renovations, though, figure to
improve throughout 2012, as investors gobble up properties to rent, and lender
prepare foreclosures for sale. The US
home improvement market is a $100 billion-plus market, and any sharp improvement
will have an impact on the economy overall.
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