Wednesday, August 17, 2011
NAHB: David Crowe discusses how the stock market impacts housing
The housing market awaits a solid economic recovery that provides potential home buyers the confidence to move forward with a major purchase. The S&P downgrade and the attendant stock market plunge adds to uncertainty and consumer discomfort as they see their wealth fall, again. But, the real underlying question is whether the economy is headed for a double dip or whether the stock market is simply over-reacting to the string of poor economic reports, the debt ceiling debacle and now the downgrade. The probability of a double dip has increased, but that outcome remains unlikely.
My money (literally) is on a continued but slow economic recovery that will eventually convince the pent up housing demand to come back into the market. Consumer confidence has been slow to respond to the economic bright spots, but some durables such as vehicles and furniture experienced growth throughout 2010 and into 2011. Employment did pick up solidly in early 2011. Many of our foreign trading partners continue to expand and buy US exports even as Europe hesitates. Credit is tight but not as tight as it was. Local economies based in energy or agriculture, particularly in the Midwestern farm belt and Plains states, are showing improved economies, rising employment and even home building.
Recent GDP revisions have indicated that high oil prices, political turmoil (overseas and at home), disaster in Japan and the inability to decisively conclude the debt/deficit debate have taken a higher toll on production and consumption than previously understood. But, even accounting for these events, the first half performance was poor. The second half of 2011 is primed to see improvement. Consumers have been repairing their balance sheets, paying down debts and saving more. Businesses have cut expenses to the bare bones and, until very recently, improved productivity. Inventories are stable and will need replenishment as we move forward.
Housing market conditions are primed for a recovery. Interest rates are low and the Standard and Poor’s downgrade is not likely to affect rates in any appreciable way. House prices have bottomed in many smaller markets although the national indexes continue to show some weakness as they are heavily influenced by large markets with an oversupply of existing homes.
NAHB forecasts a slow economic recovery that will be softened further by the investor worries. However, NAHB is not forecasting a double dip recession. Growth will likely improve from the annual rate of less than 1% in the first half of this year to 2.5 to 3.0% in the second half, with more solid growth coming next year. As momentum builds and employment and incomes being to gain ground, consumers’ confidence will improve and the recovery will gain speed in 2012 and 2013.