Spring Outlook: Housing Will Have ‘Strength Again Soon’


Published April 11, 2014

| FOXBusiness

The housing news in the recent winter months has been weak across the board, and has left one glaring question in its wake: When is the data going to get better?

“There are a lot of things hanging over the market right now,” said Jed Kolko, chief economist at real-estate site Trulia. “The biggest question is whether job growth and income growth has been strong enough where traditional buyers can pick up the slack from the decline in investing activity.”

Kolko says investor interest is receding after a surge in home prices over the last year, coupled with higher mortgage rates. But that’s not the only thing on the decline.

New and existing home sales, as well as housing starts, all fell in February.

“The April, May, June data -- that will gives us a better read on what’s going on,” says Josh Feinman, chief global economist at Deutsche Bank. “During the recession, housing activity was crushed down to the lowest levels. Now it’s being cleared and housing can start returning to better numbers, slowly…. It is a recovery, in fits and starts.”

One of the elements frustrating a complete rebound of the housing market, says Feinman, is the slow pace of job growth.

“We lost about 10 million jobs during the recession, and we have been chipping away [at that deficit] and crawling back. By May, we will probably be back to the pre-recession level, which means from January 2008 to May 2014, there were zero jobs created.”

Housing formation rates were hit hard during the Great Recession, and while Feinman said they are still pretty sluggish, he points out that they are inching back up. That is a very good thing for housing.

“Young people have got to live somewhere and at what point do you decide that you can’t take it anymore and leave your parents’ house, even if it’s just to rent an apartment,” said Feinmain.

Right now, the annual rate of existing home sales is at a seasonally adjusted 4.6 million. Kolko says a good long-term average number should be closer to 5.5 million.

“There are a lot of things happening,” said Kolko. “Weather certainly played a part. Affordability is also another issue. Nationally, it’s about 20% more expensive to buy than a year ago because of the price increases and interest rate increases.’

Paul Diggle, an economist at Capital Economics, forecasts overall activity will "strengthen again soon."

“These falls were largely the result of the recent severe weather, as well as the slowdown in job growth around the turn of the year,” he said in a monthly housing release. “The return to normal weather conditions and reacceleration in jobs growth should ensure that activity strengthens again soon…. The building permit numbers already point to a pick-up in housing starts.”

Feinman agrees.

“Yes, the housing numbers are seasonally adjusted. But the winter we just had, in the Northeast and especially in the Midwest, was much worse than the average winter,” he said. “How could someone build a house when the ground is frozen? In the Midwest, there were many times when people couldn’t work outside.”