Despite the uneven nature of the recovery and the consumer reluctance that has resulted, the housing market will see improvements in 2016 and 2017, says National Association of Homebuilders Chief Economist David Crowe.
Crowe made his comments during the Homebuilders Association of Greater Chattanooga (HAGC) and the Greater Chattanooga Association of Realtors’ (GCAR) annual joint economic luncheon, held at The Chattanoogan Hotel Tuesday, Aug. 18.
“I call the current economic recovery the unrecovery,” he said. “It’s been uneven, uncertain, unreliable, unresponsive, unacceptable, and unpleasant. In short, it hasn’t been your grandfather’s recovery.”
To illustrate his point, Crowe displayed two graphs, each of which compared single family permit (SFP) growth during the economic recovery in the early 1990’s and the current recovery in a unique group of states. One group has seen 80 percent of higher growth, while another group has experienced 25 percent or less growth.
“You’ve experienced a different kind of recovery depending on where you live,” he said.
Tennessee was not on either graph, but falls in the middle, doing better than some states but not as well as others.
The downside of the economy
Overall, the SFP component of the economy has been the most sluggish of the key drivers, which also include housing prices and employment. When taking all three drivers into account, the U.S. is at 92 percent of normal, while Chattanooga has climbed back to 89 percent, Crowe said. But SFPs have recovered only 46 percent nationally and 49 percent in Chattanooga.
Crowe said the U.S. Gross National Product (GNP) offers another example of the subpar nature of the economy. “At this point in the recovery, our GNP should have grown 26 percent, when in fact it’s grown only 13 percent,” he said.
The economy has also been slow to add jobs, Crowe said, which affects the housing market. Although according to precedent, 14 percent more people in the U.S. should be working today than at the beginning of the recovery, only eight percent more people are working. Although Crowe didn’t have specific numbers for Chattanooga, he did say local employment growth has been lethargic , too.
Income growth has been languid as well, due mainly to a lack of goods producing jobs being added to the economy. “We’re adding jobs in the service sector but not jobs in the goods producing sector, which tend to pay more and allow people to buy houses,” Crowe said.
In a statement that was news to none of the Realtors in the room, Crowe said rigid underwriting standards are also negatively affecting the housing industry. “In addition to people not feeling comfortable with their economic future, we have very tight underwriting standards,” he said. “That’s why we’re not seeing many first-time homebuyers. A lot of them have a ding or two on their credit score and can’t qualify for a mortgage.”
The upside of the economy
Despite all of this, Crowe said the NAHB is forecasting greater growth in the years ahead. “The economy is picking up steam,” he said. “We’ll continue to experience slow growth in 2015, but in 2016 and 2017, we’ll be back to solid and dependable growth.”
Nationally, Crowe expects the economy to add three million jobs per year, which will give a healthy kick to the housing market. “The secret to encouraging people to buy a house is to not only give them a job but make them feel like they’ll keep it,” he said. “When companies are hiring instead of laying off, people will begin to feel comfortable with buying a house.”
There’s good news on the income front as well, Crowe said. By the end of 2013, Chattanooga was already showing a slight uptick in household income growth. Currently, the city is showing four percent growth in income. “Not only are more people finding work, they’re making more money, which means they’ll be more likely to buy a home than rent,” he said.
Crowe also said more households are being formed, which bodes well for the housing industry. “Back when you could get a mortgage if you could fog a mirror, we were forming 1.4 million households a year. Then the market collapsed and that number dropped to about half of what it was,”
Crowe said. “But over the last three quarters, that number is up over normal levels. Kids are moving out, creating more demand for apartments; builders are building more apartments to meet that demand; and current apartments dwellers are feeling more willing to transition to homeownership.”
Crowe even thinks policymakers in Washington, D.C., will soften the underwriting standards in an attempt to counter the effects of the bump in mortgage rates.
The final analysis
All things considered, Crowe’s SFP forecast is quite positive. By 2017, he expects the SFP component of the national economy to be up to 91 percent of normal. He’s projecting the same thing locally.
“Two years from now, we should see first-time homebuyers coming back,” he said. “That will make it possible for existing homeowners to sell their homes and move forward.”
This is especially good news for builders, as existing homeowners are the primary customers of new construction, Crowe said.
Each year, the HAGC and GCAR swap hosting the luncheon. It was HAGC’s turn to host this year, prompting them to extend the invitation to Crowe, who has spoken to the group before.
“I did this a couple of years ago, and even though I didn’t have great news then, you invited me back. I appreciate that,” he said.
With that in mind, Crowe can expect another invitation in 2017, whether or not his projections for better things in the years ahead come to fruition.