Stability in Housing Market Bodes Well for Mortgage World

21 Dec

Housing Market’s Foundation Looking More Stable

By Kathleen Madigan for the Wall Street Journal December 20, 2011

Builders were busier than expected in November, and many are more upbeat heading into 2012. In recent years, housing was supported by temporary help from government tax rebates. Now, the sector looks as if it can stand on its own.

Housing starts jumped 9.3% in November to a stronger-than forecast 685,000 annual rate, and permits rose 5.7% to 681,000. In addition, the housing market index compiled by the National Association of Home Builders rose for the third consecutive month in December.

Of course, as with any economic sector, housing has been transformed by the recession. For one thing, the latest readings pale in comparison to record highs posted in the boom years.

For another, the mix of projects has changed. During the heydays, builders took hammer and shovel to single-family homes. Now, apartment buildings are showing the most strength.

Starts of 5 units or more are up almost 60% so far this year compared to 2010, while single-family starts are down 10%.

Steve Blitz, senior economist ITG investment Research, points out apartment construction fell out of favor in the mid-2000s because typical renters were able to get easy financing to buy a house. That depressed both apartment building and the growth of rents themselves.

“Those days are gone as far as mortgage financing are concerned yet the population continues to expand,” Blitz says. “With the economy recovering, weak as it is, new households are being formed and they need a place to live.”

Pent-up demand for housing may be larger than in normal recoveries. Labor conditions — including no jobs, part-time work, or low pay — have forced a large proportion of young adults to keep living at home. The Census Bureau estimates 19% of men aged 25-34 are living with their parents this year, up from 14% in 2005. The share of young women at home also increased, but only to 10% from 8%.

If job growth continues to firm, these young adults should have the funds and confidence to find their own places. That will lay the foundation for a virtuous cycle in housing.

Joel Naroff, of Naroff Economic Advisors, says the rule of thumb is that every additional 100,000 starts adds roughly 250,000 new jobs, which will probably come on-line in 2012.

“Since these tend to be well-paid positions, income growth should be bolstered as well,” he says.

Better job and income growth will, in turn, enable more workers to want to buy a home.


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