Rise of the Rentals

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Th e M Rep o RT | 47 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 despite challenges, Housing still attractive Fitch says there's still a lot to appeal to homebuyers. i n an analysis gauging the re- covery's progress, the ratings agency listed harsh winter weather across the country as one of the biggest factors moderating the housing recovery, though higher interest rates and home prices have also provided some drag. "During the winter and early spring, unusually cold tempera- tures and frequent, powerful snow and rain storms in various markets and even regions . . . de- terred potential homebuyers and delayed construction activities," Fitch said. "Throughout last year, builders aggressively raised home prices in most markets (espe- cially coastal markets) and where possible elevated prices more modestly in the first quarter." Affordability will likely only deteriorate. Looking at 2014, Fitch expects new home prices to rise between 2.5 and 3.5 per- cent, with existing-home prices also moving up. However, despite affordability and debt hurdles—particularly for young first-time homebuyers—the firm says overall mortgage afford- ability remains favorable relative to historic norms, and "[h]ome prices are undervalued when compared to incomes." Given the bigger picture, Fitch says, housing looks attractive in a historical context. "[M]onthly housing statistics can be volatile, and we still believe the market will show a moderate gain for the year," analysts for the firm say in the report, adding that "the spring selling season will likely not set the tone for the rest of 2014." "The continued shape of the recovery will reflect the pace of economic activity and the avail- ability of private capital to sup- port mortgage growth above the floor in volume provided by the GSEs and FHA [Federal Housing Administration]," Fitch said. "Stringent credit standards as well as escalating home prices and interest rates could also further moderate the pace of recovery." national recovery measure rises to 88% Metros outside of the top energy states are starting to see the light at the end of the tunnel. W ith the spring buying season in the housing market in full swing and stronger employment numbers reported, confidence is gaining that economic recovery is right around the corner. Analysts and home- builders alike agree that this looks to be a very strong year for housing. A steady release of pent-up demand from buyers seems imminent, so there is light at the end of the tun- nel—and it's not a train. "I think the big news here is that regions outside of the energy states continue to gain ground," said NAHB chief economist David Crowe. "It's a promising sign to see areas like Los Angeles and San Jose joining the top 10 largest MSAs [metropolitan statistical areas] showing a recovery. We still expect 2014 to be a strong year for housing and to aid in the overall economic recovery. The job mar- ket continues to mend, and with that we will see a steady release of pent-up demand of buyers." With the middle of the country experiencing an energy boom, places like Midland and Odessa, Texas, show that their markets have doubled in strength prior to the recession. Smaller metros like Bismarck and Grand Forks, North Dakota, and Casper, Wyoming, are currently at the top of the list. In major metros, Baton Rouge, Louisiana, has topped the list, while Honolulu, Oklahoma City, Austin, Houston, San Jose, and Harrisburg have all shown great signs of recovery. Overall, 28 perfect of metro areas had a rising score, and 83 percent have shown an improve- ment over last year's results. This raised the nation's index score— this time from 0.87 to 0.88. NAHB's index is based on 350 markets that are scored by their av- erage permit, price, and employment levels for the last 12 months and dividing the annual average over the last period of normal growth, which mostly took place from 2000 to 2003 in homes and 2007 in employment. construction spending ticks Up The bad news is that spending on homebuilding was down. T he Department of Commerce reported that construction spending throughout February came to an estimated seasonally adjusted annual rate of $945.7 billion, a 0.1 percent climb from a downwardly revised level of $944.6 billion in January. Year- over-year, February spending was up 8.7 percent. During the year's first two months, the government esti- mates construction spending amounted to $128 billion. Between both private and public projects, residential construction spending was at an estimated rate of $365.2 billion, down 0.7 percent from January but still up 13.1 percent over February 2013. In the private sector, residential construction was pegged at a pace of $360.4 billion (0.8 percent down from January), while spending on public projects was up 5.1 per- cent to $4.9 billion. The drop in spending on homebuilding matches February's plunge in builder con- fidence, which—as measured by the National Association of Home Builders—registered at an index reading of 46, below the mark between a market viewed pre- dominantly as "good" or "bad." Even with February's slug- gishness, analysts at Wells Fargo's Economics Group insist in a report that the news isn't all bad, noting that overall spending once again achieved a five-year high. "February's gain was concen- trated in nonresidential spend- ing, which rose 0.6 percent. Residential fell 0.7 percent, but despite the decline, the housing recovery is still on track," they said, adding: "Private residential spending is up 13.5 percent over last year."

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