Housing: Rebound or Recession?
| Published May 27, 2014 |

By Thursday Review staff

Sometimes the business press just can’t make up its mind. Only a few weeks ago Bloomberg and other business sources were reporting that the new housing boom had already gone bust—or at least had slowed down from its mini-boom which peaked last summer.

The 2013 uptick in homes sales and new home construction came to a grinding halt when winter slammed most of the country with months of severe, record-breaking cold, snow, ice and general nastiness. Not only did construction come to a halt, but transportation was inhibited even to those few areas where outside working conditions were still moderate. As for existing homes and newly built homes, real estate agents in many states reported flat-lined sales, as home buyers were disinclined to go outside to look at houses.

Polar Votex spurred a mini-recession across the board (auto sales suffered for some of the same reasons), but real estate felt the pinch especially hard during the harsh winter. Even repairs and improvements to existing homes suffered in many states where temperatures dropped to record lows week after week, or where home owners spent much of their time digging out from under heavy snow. Winter stretched deeply into March, further delaying the start of spring house shopping.

April finally brought some relief as potential home buyers were able to begin looking again, and those considering selling a house could at last start the outside preparations.

As was widely reported, several problems became apparent: interest rates were still high, meaning that buyers were facing problems with stingy lenders; and prices on homes—especially previously owned homes—were somewhat higher than what those qualified buyers could afford. Bloomberg Businessweek’s article is titled “The Housing Rebound Stalls,” and illuminates some of the many facets of the problem: wages have not risen; new home buyers have sticker shock; banks and lenders are being picky; all that pent up demand from the long winter did not translate as predicted into a buying surge.

But some of those same business writers and analysts are now saying that things could be turning around. According to figures released by Freddie Mac, rates on fixed-mortgages fell again for the fourth consecutive week, and those low rates may spur some consumers back into the market for new homes and previously-owned homes.

To further muddle the issue, some cities and metro areas have seen a sharp uptick in homes sales, while others have seen a recessionary decline. Some experts explain this apparent schizophrenia as evidence that many housing markets are still in a state of flux, with corrections taking longer in those areas where home values were the most wildly inflated, even as prices begin to soar again in other regions. The national indicators are taking a back seat to local factors.

Still, some economists are bearish, suggesting that as housing goes, so goes the wider economy. Homes are the single biggest ticket item that most Americans will encounter, and when sales decline—existing homes, new homes—dozens of other market factors decline along with the slump, including lumber sales, roofing, electrical and plumbing, transport and delivery, do-it-yourself retailers like Home Depot and Lowe’s, and mass merchandise stores like Sears, Kmart and Bed, Bath & Beyond. If home sales and home construction slows enough, like it did over the winter months, the multiplier effect can begin to directly impact jobs.

Home Depot recently reported that its sales were much slower than expected—in large part because its numbers suffered during the harsh winter, but also because repairs to existing homes and new home construction have failed to accelerate as was widely predicted in the first quarter.

Another misleading indicator was found in April, when housing starts—a reliable barometer of general economic health—rose slightly. But beneath the good news were numbers which indicated that the majority of this “new home construction” was actually multi-family dwellings—apartments, and smaller multiplexes being built for the rental market. Home ownership reached its U.S. peak in 2004 at 69.2%, but that percentage has remained stubbornly low ever since the housing bubble burst in 2008. This year, developers and builders nationwide are busy constructing apartments. But nationwide, permits for single family homes have fallen about 3% since spring of last year.

In mid-May, CNBC reported that the monthly index by the National Association of Home Builders has slipped to 45, indicating a lack of confidence on the part of the home construction industry.

In the meantime, many in real estate and in home construction remain confident that at some point on the very near future, consumer demand will begin to accelerate on a consistent basis, and many economists agree that once the job outlook becomes healthy—nationwide—home sales will begin to reflect a return to optimism.

Related Thursday Review articles:

Home Depot Still Feeling Winter; Thursday Review; May 20, 2014.

Home Construction & Sales Down; Thursday Review; March 25, 2014.