November Press & Charter

Eye on the Economy: The Economy Is Improving, Or Is It?

NAHB Chief Economist David Crowe

Employment Takes Another Step Down

Residential construction employment fell 13,300 in September, an improvement over August’s drop of 19,600 and the 19,800 jobs lost in July. Since September 2008, the nation has lost a total of 5.8 million jobs, including 443,000 residential construction jobs. The national unemployment rate for September was 9.8% — up from 9.7% in August. The construction unemployment rate increased in September, jumping to 17.1% from 16.5% the month before.

Construction has registered the highest unemployment rate among the major sectors of the economy, with durable goods manufacturing registering the next highest unemployment rate at 13.1%. We expect job losses to slow through the remainder of the year and eventually turn into job gains beginning early next year.

While it is normal for employment to lag the rest of the economy, job growth could prove to be sluggish in this recovery, putting a drag on the general economy and the housing sector, in particular.

Housing Continues to Struggle

Housing continues to be buffeted by multiple forces. A weak economy, dismal job market, foreclosures, fears of further declines in home values and tight credit conditions are among the factors weighing the housing market down.

In August, existing home sales fell for the first time since March — dropping from 5.2 million in July to 5.1 million, at a seasonally adjusted annual rate. However, the August sales rate was an improvement over the August 2008 sales rate of 4.9 million.

Even so, the recent slowdown in sales is somewhat troubling in the face of the looming Nov. 30 expiration date for the first-time home buyer tax credit. The tax credit should have boosted sales for August as households rushed to meet the deadline, and it may still give a boost to September existing home sales.

New home sales posted their fifth monthly increase in August, though just barely, rising to 429,000 for the month, at a seasonally adjusted annual rate up from 426,000 in July. That, however, was below the August 2008 sales rate of 444,000.

At this point, requirements for making a simple home purchase and lining up a mortgage precludes anyone who is not already in the sales process from utilizing the first-time home buyer tax credit.

It does appear that new home sales have benefited indirectly from the first-time home buyer tax credit by enabling owners of existing homes to sell their homes to first-time buyers eligible for the tax credit. Once their homes were sold, this allowed them to buy newly built houses.

What Lies Ahead for the Economy and Housing?

The economy does seem to be in the early phase of a recovery as government money from the stimulus package is just beginning to flow into the economy, sparking some spending. Early indications are that overall output is on the rise, even as some parts of the economy continue to shed jobs. Unfortunately, job losses are still outstripping job gains, resulting in a net loss of jobs, and the outlook is for further job losses into early next year.

Housing demand, supported by the first-time home buyer tax credit, has shown some improvement since hitting bottom in January, which has stopped the slide in home prices in some markets. In most of the country, housing prices have returned to around their 2003, pre-bubble levels.

Six years down the line, this seems like a reasonable level for home prices in all but the most overbuilt markets, where excess inventory of houses is still a major impediment to bringing the market back into balance.

However, both the economic and housing recoveries are fragile and subject to setbacks. Consumer confidence remains shaky. Housing remains vulnerable as job losses mount. Pending foreclosures threaten to add more low-priced houses to the market.

Expiration of the first-time home buyer tax credit will remove a key support to housing demand. Unusually strict loan requirements continue to make it difficult for even households with good credit to obtain a mortgage to purchase a house.

This is further complicated by inappropriate appraisals, which have undermined a number of deals. And, finally, lack of production credit has limited the ability of many builders to respond to the limited demand that has blossomed in recent months.

All of these factors are acting as a drag on the demand for housing, which in turn is hindering the economic recovery.

MAHB Statewide Radio Ads Start

Utilizing an NAHB grant and utilizing a contribution from the Michigan State Housing Development Authority and a 4:1 in-kind match from the Michigan Association of Broadcasters, you should start hearing a statewide campaign that runs into November urging consumers to act on housing tax credits and down payment assistance programs before the end of the year. The ads also encourage listeners to go to MichiganHomeTaxCredits.Com for more information. At that site, there are links to the tax credit information as well as links to each MAHB local association.

Revive Housing, Restore America

A series of teleconferences with local builders is being held by NAHB around the country. The goal is to alert the media to challenges facing housing that must be addressed by Congress in support of a sustained housing upturn, job creation and a more vibrant national economy.

Through its “Revive Housing, Restore America” campaign, NAHB is continuing to urge lawmakers to address housing priorities.

To participate in this ongoing grassroots effort, builder constituents are encouraged to visit http://www.nahb.org/revivehousingnow.com. This one-stop site contains information on calling and e-mailing members of Congress, as well as talking points, banners for Web pages, print ads, op-ed letters that can be sent to local newspapers, and more.

To generate public interest in the campaign, NAHB’s consumer-focused Web site at www.ReviveHousingNow.com asks potential buyers to contact their lawmakers and urge them to extend the home buyer tax credit.

July 2010 Press & Charter

November Press & Charter

MAHB Statewide Radio Ads Start

Revive Housing, Restore America

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