The Psychology Behind the Recovery

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54 | Th e M Rep o RT o r i g i nat i o n s e r v i c i n g a na ly t i c s s e c o n da r y M a r k e t ANALYTICS the latest naHB Projects Positive 2014 headwinds persist, however. S peaking at the National Association of Home Builders (NAHB) International Builders' Show (IBS) in Las Vegas, economists expressed a positive outlook for homebuilders in 2014—with a few warnings. Pent-up demand, a growing economy, and a stronger job market should increase homebuilding in 2014, a welcome outlook for NAHB. NAHB chief economist David Crowe noted, "My single-family forecast for 2014 is pretty aggressive: 822,000 starts, which is likely 200,000 more than 2013." Crowe noted five key points for his positive projections: "Consumers are back, pent-up demand is emerg- ing, there is a growing need for new construction, distressed sales are diminishing, and builders see it." Despite the projection for growth in 2014, new-home sales are averaging just 8.7 percent of total home sales, a figure half of the 16.1 percent historical average. By the end of 2015, the top 20 percent of states will be back to normal produc- tion, while the bottom 20 percent are expected to be below 84 percent. The slow and steady housing recov- ery will bring nationwide housing starts to 71 percent of normal by the fourth quarter of this year and 93 percent of normal by the end of 2015, Crowe said. However, problems could continue as builders face rising material prices, tight mortgage credit conditions, diffi- culties in obtaining accurate appraisals, limited availability in labor and devel- oped lots, and skittish consumers who perceive Washington as gridlocked and uncertain. Rising mortgage rates were another concern. Frank Nothaft, VP and chief economist at Freddie Mac, expects a slight rise in mortgage rates in 2014 but not enough to harm housing afford- ability. "Regarding mortgage rates, we've gone from dirt cheap to cheap, and I think we will see a gradual rise of about a half a percentage point to 5 percent in 2014," said Nothaft. But even in spite of the raising rates, he said, "most markets will remain quite affordable." He believes many households look- ing to refinance have already done so, and the slight increase in mortgage rates will stem the tide of refinancing. "As we move into the 2014 home- buying season, it will be a market domi- nated by home-buying originations rather than refinance originations," Nothaft said. "This will be the first time since 2000 that purchase originations will dominate the market." taking inventory More Markets return to Pre-recession Health NAhB says the country is running at 87 percent of its pre-crisis norms. t he National Association of Home Builders (NAHB) released new figures from its Leading Markets Index (LMI), revealing 58 out of approximately 350 metro areas have either returned to or exceeded their last normal levels of economic and housing activity. "Normal levels of economic and housing activity" are defined by the index as a calculation of single-family permits and home prices from 2000 to 2003 and employment statistics from 2007. The current numbers are averaged and compared to the average of normal levels; an index over 1 indicates a market has returned to or exceeded its previous normal levels of economic activity. "Housing markets across the nation are continuing their slow and steady climb back to normal levels," said NAHB chairman Rick Judson. "As employment and con- sumer confidence slowly improves, this is spurring pent-up demand among potential buyers." Major metropolitan areas ex- periencing a bump include Baton Rouge, Louisiana. The city tops the list of major metros, with a score of 1.41—representing a 41 percent increase from its last nor- mal market level. Other metros with positive index scores include Honolulu, Oklahoma City, and Houston. Smaller metros also experienced a rise in economic and hous- ing activity. Both Odessa and Midland, Texas, boast LMI scores of 2 or better, denoting a doubling of their strength prior to the recession. "Firming home prices are hastening the return of normal economic and housing activity in an increasing number of markets," said David Crowe, NAHB chief economist. "The healthiest mar- kets continue to be centered in smaller metros that boast strong local economies, particularly in the oil and gas producing states of Texas, North Dakota, Louisiana and Wyoming." Weak Job growth continues through January employment numbers disappointed for the second straight month. t he Bureau of Labor Statistics' (BLS) jobs report showed another disappointing month of growth in January—and this one can't all be blamed on the weather. According to the government's latest data, total nonfarm payroll employment rose by 113,000, adding more bleak numbers to December's revised growth of 75,000. The unemployment rate edged down slightly to 6.6 percent. Since October, the jobless rate has fallen more than half a percentage point, largely thanks to declines in the number of people counted as being part of the labor force. There's a little bit of good news, though: After falling in December, the civilian labor force participa- tion rate inched up slightly to 63 percent, with 499,000 people enter- ing the work force. With the next Federal Open Market Committee (FOMC) meeting to be held this month, it remains to be seen how January's data will influence the Federal Reserve's stimulus program. In its last meeting, the committee brushed aside December's dismal re- port as an anomaly in the midst of otherwise active economic growth. However, with the latest data indi- cating weakening, Fed officials may feel compelled to hold off on future cuts to asset purchases. Despite the cold conditions, the construction sector fared particu- larly well in January, growing by 48,000 jobs, offsetting a decline of 22,000 in December. Residential building jobs grew by 13,000. Growth also occurred in manu- facturing (+21,000), wholesale trade (+14,000), and professional and business services (+36,000). Meanwhile, federal govern- ment employment continued to trend down, with 12,000 job losses throughout the month.

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