The numbers and outlook for the housing market are looking up overall across the nation.  Real estate is a larger part of the GDP (Gross Domestic Product) growth, growing 2 to 4 times the rate of other economic factors during the recovery from the Recession.  According to economists at the National Association of Home Builders (NAHB) Fall 2013 Construction Forecast Webinar, real estate is going to lead the way in the recovery, but it still have some obstacles to overcome.

The good news is that foreclosures and short sales are becoming a minor percentage of home sales as investors are disappearing or receding from the market.  Below are some other positive indications of a full recovery for the real estate industry:

• Gradual increase of employment.  Even though the unemployment rate seems to be inching down very slowly, the fact remains that the employment rate is going up nationwide.

 

• Continual price increases of homes.  The home price increases over the last consecutive months will continue, just not at such a rapid pace.  And with the price increases, homeowners will be able to sell their homes and move up to 2nd, 3rd, and even 4th homes filling the resale market with inventory.

 

• Rise of household formations.  Before the Recession, the formation of households each year (generations moving out and creating new households / families) topped out at 1.4 million.  During the Recession this was reduced to 500,000.  Even with the scarcity of jobs for college graduates, this number has rebounded in 2013 to 700,000 which is half of “normal,” and it is still predicted to grow over the coming years.

 

• Consumer confidence and household habits.  Many homeowners and renters got rid of debt during the Recession because of a fear of inflation and long-term unemployment.  In addition, they increased their savings by staying out of the volatile market on Wall Street.  Because of this, these potential home buyers are equipped to pay the down payments that some loans now require.

 

• Low inventory.  It’s all about supply and demand.  While builders have been slow to trust the recovering market, once the “floodgates opened” with the advent of the historically and astronomically low interest rates, the supply of housing has been dwindling from the “over a year’s supply” to just over a 4 month’s supply now.  Most sellers are getting above their asking price as well as getting multiple bids in popular areas such as the Garden District in New Orleans.

With all of the positives, there are several obstacles standing in the way of the housing recovery which economists say will “work themselves out” as the market recovers:

1. Tight credit requirements by lenders are still making it very difficult for buyers to qualify for a mortgage.  This has been the case ever since the “bubble burst” in the housing market. Required by federal regulations, lenders are requiring much more background information from borrowers.

2. Labor shortages for builders are now a problem.  The story is that during the Recession, most construction employees and sub-contractors had to find work elsewhere when the housing market dried up.  Because of this, it is now delaying builder on home completion timelines because of the difficulty of scheduling contractors on the job.

3. Inaccurate appraisals because of foreclosures and short sales. Tightened monitoring of the appraisal process has caused a headache for builders, Realtors, buyers and sellers alike. In addition to the drag that short sales and foreclosures have on the comps, there has been a rash of inaccurate appraisals reported across the board in many different subdivisions and communities.  This matter is currently being addressed on both state and federal levels.

4. Higher cost of materials. In all industries, inflation has set in, in the form of gas, groceries, and supplies.  This has also affected the cost of building materials.  Higher costs of materials has cut into the profit margins of many builders.

Even with these obstacles, economists are still predicting an almost total recovery of the housing market by the end of 2015.

“Normal” production of housing averages around 1.7 million starts per year.  Right now, the NAHB forecast of 924,000 total housing starts in 2013 up 18% from 2012 which was 783,000. Because of the dearth of housing starts and a supply of homes, for once, the problem will be too few houses.

Forecasters predict that a gradual and steady housing recovery in the top 20% of housing states will have housing starts nationwide up to 71% of normal by 4th quarter of 2014 and 93% of normal by the end of 2015.  The “bottom tier states” that are still recovering will still be at or below 84%.

 

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