Advertisement
Home & Real Estate

Housing Will Add to the Economy's Growth This Year

The sector’s collapse is just about over, but don’t look for the typical boomy recovery.

It’s another small sign that the economy is improving: Flickers of life in the housing industry. True, it’s nowhere near the usual pattern, in which housing soars as a recession ends. But look for the industry to make a small contribution to GDP growth this year instead of subtracting from it, as it has in 17 of the past 20 quarters.

Advertisement - Article continues below

The industry will also add jobs this year -- a small gain of about 125,000, after shedding 1.44 million since 2006. Housing starts are slowly inching up, getting a big boost from apartment construction in January (although this volatile segment did take a dive in February). Still, with mortgages tougher to get and with would-be buyers spooked by a three-year decline in home prices, rental demand is strong. That’s shown by the homeownership rate, which is down to 66.5% from a peak of 68% and on its way back to its historical norm of 64%. Each percentage point equals about 1 million households.

Starts of single-family houses will be up a smidge this year, climbing to about 650,000 from about 590,000 last year. That’s about one-third of the total racked up each year from 2004 to 2006. They remain in the dumps after the two lowest years on record in 2009 and 2010. As an executive with a major builder says, “It feels as if we’re not falling as fast as we were. But it’ll be a long claw back.”

Advertisement - Article continues below
Advertisement
Advertisement - Article continues below

There’s also a lift from remodeling -- some from buyers of empty, foreclosed homes and some from owners opting to stay put and spruce up their houses rather than trying to trade up and go through the hassle of selling and buying.

New-home sales will linger near historical lows, around 350,000 this year. Traffic at model homes is on the rise, but sales will take a while to materialize. Thomas Lawler, a Virginia housing consultant, says it’s good that construction remains so low, adding that “as demand increases and supply remains subdued, prices will level off.”

Sales of existing homes will creep higher, to just over 5 million this year from just under that mark last year. Mortgage rates remain attractive, with the 30-year fixed rate loan near 5%, about where it was one year ago. The rate is likely to creep toward 5.5% this year, but any dampening effect will be offset by the positive impact of additional jobs in a growing economy. A bigger impediment to sales is that tight lending standards -- more money down, a higher cutoff in credit scores -- limit potential buyers.

Advertisement - Article continues below

Another good sign: Fresh loan delinquencies are waning. These track the job market -- specifically, the filing of initial claims for unemployment benefits. But foreclosures won’t show a letup. The probe into shoddy paperwork by banks on mortgages delayed the process, so we expect foreclosures to climb from 1.8 million last year to 2 million in 2011. One in four mortgages remain underwater, but fewer of these homeowners will go into default as layoffs continue to ease and hiring shows modest gains.

Prices will continue to slide lower through midyear or so -- an additional 4% on average, a bit more in once-hot markets, including Tampa, Las Vegas and Phoenix. Prices will be stable in many cities that dodged the boom-bust cycle -- for instance the wide area between the Mississippi River and the Great Smoky Mountains.

Signs of improvement, then, indicate that the depression in housing is nearly over. But major gains remain in the distance. Supply and demand are still out of whack, and balance will come only with substantial job creation and a renewed appetite among consumers.

Advertisement
Advertisement

Most Popular

What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump issued an executive order to suspend the collection of Social Security payroll taxes. How much will it save you?
August 10, 2020
7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020
How a Second Stimulus Check Could Differ from Your First One
Tax Breaks

How a Second Stimulus Check Could Differ from Your First One

The HEROES Act, which the House passed in May, would authorize another round of stimulus checks. While the new payments would be similar to the first …
August 11, 2020

Recommended

12 Cheapest Small Towns in America 2020
real estate

12 Cheapest Small Towns in America 2020

Affordable small towns aren't necessarily the best places to live for everyone, but each cheap small town on our list has its charms.
August 6, 2020
5 Great Places to Buy a Vacation Home
buying a home

5 Great Places to Buy a Vacation Home

With remote work on the rise, more people are looking for a permanent getaway.
July 30, 2020
Timely Reasons to Buy a Vacation Home
Smart Buying

Timely Reasons to Buy a Vacation Home

With remote work on the rise, more people are looking for a permanent getaway.
July 30, 2020
13 Tax Breaks for Homeowners and Home Buyers
income tax

13 Tax Breaks for Homeowners and Home Buyers

Owning (or buying) a home is expensive. But at least there are some tax deductions, credits, and exclusions that can help you recoup some of those cos…
June 22, 2020