Housing Forecasters Place Their Bets
by Megan Headley, Ellen Rogers and Tara Taffera

While the fall is a time when individuals offer their predictions for who’s going to win the World Series or looking ahead to what teams are on track for the Super Bowl, housing experts are busy preparing their own forecasts. The nation’s experts rolled out their forecasts for 2011 in late-October—and an industry feeling the tough times of the last few years was eagerly awaiting the news. DWM gathered all the reports and the results are featured on the following pages. While housing definitely won’t be headed for a home run, perhaps it will be at least headed to first base as it continues to round the bases on its road to recovery.

Housing Starts
Robert Murray, vice president of economic affairs for McGraw-Hill Construction, said housing starts will increase 24 percent in 2011. That optimistic message was music to the ears of many attendees at his company’s Construction Outlook Conference.

Murray attributed that optimistic prediction to several trends including demographic demand for single-family housing that “is significantly higher than what we’re actually seeing.” He pointed to the number of individuals poised to become first-time homebuyers as a result of temptingly low interest rates. “Certainly the potential is there to head upward,” he said.

“There’s still a lot of uncertainty in the market,” he said, pointing to difficulties in getting funds for homebuyers and developers alike. Murray also expects the overall number of foreclosures this year to top last year’s amount.

David Crowe, chief economist for the National Association of Home Builders (NAHB), offered his forecast in October, and he attributes the “foreclosure issue” as a factor to the slow recovery.

“The excess of foreclosed homes are holding down houses prices and absorbing costs that would go to new construction,” he said. But, he pointed out, “it’s mostly concentrated in a few places.”

The difficulty residential builders have had in getting loans approved is only one of the reasons builders have been careful about adding any additional inventory. The other remains reduced sales. NAHB recently surveyed its member builders as to why they find potential buyers aren’t buying. “The leading reason consistently over this cycle has been they cannot sell their home,” Crowe said. “The second leading reason, of course … is the employment situation. People worry about their jobs, even if they have one.” He added, “We’re actually seeing that as a strengthening cause of reluctance.”

Still, Crowe pointed to some encouragement that “we’re seeing the lull of mid-year end and some modest recovery occurring … We’ve got a lot of people right on the edge, they didn’t move out of their parents’ homes, they’ve got roommate situations … [these are] reasons they’re not a household now, but reasons they’re soon to be one.”

Home prices will not increase until perhaps the fourth quarter 2011, Murray predicted.

“The low rate and low house prices that we have experienced and continue to experience does mean affordability is very high,” Crowe said.

As an interesting side note, Crowe said that house sizes have declined significantly. “In most recessions that’s not unusual … because when the first-time homebuyer becomes a share of the market … they buy more modest homes,” he said. This recession may have compounded this trend as even repeat buyers are buying smaller homes due to having less equity from their current homes, having less confidence in future house prices and tending to take energy costs into account as they consider heating or cooling a large home.

Housing Market Indicators
Kermit Baker, chief economist for the American Institute of Architects, also spoke during the McGraw-Hill Conference and said a number of things have to happen before the market turns around. Among them: market recovery will begin at the lower end of the price spectrum—the industry will not likely reach long-term production trend until 2013 or 2014.

A key indicator in a housing recovery is for sale vacant homes and Baker says “these are modestly improving.” He added that this has been offset by vacant rentals and that there are still “at least a million rental units to work off.”

Other challenges, said Baker, are low household growth and home ownership rates.

“Home ownership is a much bigger risk than we thought,” he said. “Some households may look to rent and because of that we won’t see a lot of movement in home ownership rates.”

He also noted that a surprising thing is happening in the industry in regards to home sales (or lack of them).

“You have house prices that are very affordable and mortgage rates that are at their lowest we will probably see [in our lifetime] but yet people still aren’t buying. I think a lot of folks are ready to buy but are waiting to see if they will go lower. In that respect I think the Fed may be doing a disservice. Once people know we have hit bottom they will start buying.”

Multi-Family
Multi-family housing was one of the pleasant surprises of 2010, forecasters say. “Multi-family has made a surprisingly decent rebound mid-year, compensating for the single-family lull,” Crowe said. He acknowledged that the rebound had come as a surprise, as earlier in 2010 year he’d predicted that multi-family construction starts in 2010 wouldn’t surpass those seen in 2009.

Crowe noted that another contributing factor is, not surprisingly, an increasing number of renters who have had their credit destroyed as homeowners.

According to Crowe, this area is among those leading in recovery. “Its only retardant is the same as in single-family [construction], and that’s that builders are having trouble getting credit.”

Among the hot spots Murray sees for this segment, based on construction starts in 2010, are New York, followed by Washington, D.C., Boston, Houston and Chicago.

Leading Experts Weigh in with Predictions

Remodeling Market Predictions
Kermit Baker, AIA chief economist, reported that after growing in the first quarter, planned improvement spending has eased with some exceptions.

“Recent buyers of distressed properties are spending more on remodeling,” he said. He added that renovations of distressed properties and energy retrofits will pace the turnaround.

“The leading indicator or remodeling activity has been bumping along near the bottom with some growth expected at the end of this year and continuing into next year,” he said.

Energy Market is the Place to Be, According to Green Outlook 2011
Various forecasts have not always been encouraging in months past, but this wasn’t the case recently when Harvey Bernstein, vice president, Global Thought Leadership and Business Development, delivered his Green Outlook for 2011 during McGraw Hill’s Construction Outlook Conference. Bernstein said dramatic growth in the green market started in 2005 and will continue through 2015.

“If you’re not building green you better start because it’s becoming part of the market,” he said. Additionally, there are some specific markets enjoying significant growth, including the healthcare market, which Bernstein said is the strongest in this category.

Green is not just a buzzword, he added. More importantly, he said, “Green is being interpreted as synonymous with quality.”

It’s not more expensive than traditional building either. “Data shows that you can build green for the same cost or even less than traditional buildings,” he added.

While most talk about the energy benefits of building green, Bernstein says that overlooked benefits of building green include human elements such as improved productivity. Additionally, he said green product labels, such as GreenSeal, GreenGuard, FSC and others, are on the rise.

Bernstein ended his presentation by encouraging companies to get involved in this market if they are not already.

“If you’re not engaged in green products or green construction you will be left behind,” he said.

Tara Taffera is the editor of DWM and Ellen Rogers and Megan Headley are contributing editors.

DWM
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