Fighting the Headwind in Housing
Special Housing Market Edition
CHICAGO, March 8 /PRNewswire/ -- "'You must have the luck of the Irish. They accepted your offer.' That is what my realtor told me when I was bidding on my first house in March, 1988...the owners had accepted it on St. Patrick's Day. We put 20 percent down on a 30-year, fixed-rate mortgage, with no help from our parents...By the time we sold it in 1989, the economy had slipped into a growth recession – the economy was no longer growing rapidly enough to accommodate all the workers who were entering the labor force, and unemployment was rising. I was happy just to break even after realtor fees when the house finally sold," says Diane Swonk, chief economist of Mesirow Financial, in her annual housing market edition of Themes on the Economy, located at http://www.mesirowfinancial.com/economics/swonk/themes/themes_0310.pdf .
"I bring that example up now, as it comes closer to describing today's housing environment than much of what we have seen over the last fifteen-to-twenty years, when non-bank lenders grew bigger than banks in the mortgage market, and subprime blossomed. Even first-time buyers have an upper hand over trade-up buyers, given the challenges faced in selling existing properties," notes Swonk.
In her special housing market edition, Swonk takes a closer look at the outlook for housing, and the fallout for overall economic growth. This report is being released a month earlier than usual because of the unexpected drop in sales in January, and the concerns that those losses raise regarding the sustainability of the recovery.
Starts. Single-family starts are expected to pick up slightly, as builders attempt to move down the retail food chain and offer more value-oriented properties for first-time buyers. Multi-family starts, however, are expected to continue to decline in 2010. The pipeline of new projects has all but disappeared, while financing for new projects remains almost nonexistent. |
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Regional Differences: Many of the most overbuilt markets in California, Nevada and Florida remain overbuilt, and are not expected to see much new construction activity in the year ahead. This is also the case for the industrial Midwest, where unemployment is much higher than the national average. The exceptions are the Northeast and parts of the Plains states. Texas is in a class of its own, and doing better than elsewhere. |
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Home Sales. The expiration of the homebuyer tax credit is expected to fuel a surge in home sales this spring and early summer. We could see some giveback at the end of the tax credit. The hope, however, is that the tax credit gets us over the hump and into a more favorable environment on employment. Existing sales are expected to outperform new sales, mostly because of the deals available in the existing market. We should also see some return of luxury sales, as wealthier buyers start looking for deals. |
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Regional Differences: Sales are expected to do better in the Northeast, Central Plains, and Texas. Parts of California may also see a bit of a bounce in sales, given how much they have already suffered and how cheap housing has become in some areas. |
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Prices. Modestly improving sales and a small drop in the inventory of unsold homes on the market, suggest that prices should bottom and begin to appreciate over the course of the year. Any firming in prices that we do see, however, is likely to trigger an increase in the number of homes listed for sale, which will ultimately limit any ground that we regain. A persistently high percentage of first-time buyers over trade-up buyers will also hold appreciation in check, as first-time buyers tend to buy less expensive properties. |
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Regional Differences: Prices are expected to be slower to recover, with the exception of Massachusetts and Connecticut, where prices have already begun to rise relative to a year ago. |
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"[T]he level of activity that we see in the market is expected to remain near historic lows and more consistent with a recession (depression?) than recovery. Indeed, nobody in the housing industry is forecasting anything close to what would be considered a 'normal' level of activity until 2012," concludes Swonk.
The March issue of Themes on the Economy as well as archived issues can be found at mesirowfinancial.com.
Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, it is an independent, employee-owned firm with more than $30 billion in assets under management and 1,200 employees in locations across the country and in London. With expertise in Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate, Mesirow Financial strives to meet the financial needs of institutions, public sector entities, corporations and individuals. For more information about Mesirow Financial, visit its Web site at mesirowfinancial.com.
SOURCE Mesirow Financial
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