Apartment Industry

HOUSING
Last updated: Jan. 20, 2011
Sales of existing homes indicate that the worst is over, after the boom and bust over the past 12 months surrounding the tax credit for first-time home buyers. A surge in December followed a strong November. Despite the gains, though, the annualized pace in December of 5.2 million in sales remains below the pre-bubble trend of about 5.5 million. One spark for the jump in sales is the increase in mortgage rates starting in November, which pushed would-be buyers off the fence. Meanwhile, sales of new homes are bumping along at a very slow pace. And construction remains depressed, although housing starts, including apartments, increased by 6% in 2010, the first year since 2005 that residential building didn’t subtract from gross domestic product.
Anemic job growth is a major problem. You can’t buy a house without a paycheck. The net job growth of 1.1 million in 2010 was a good sign, but double that number is needed this year to move housing starts and sales toward prerecession norms. Job growth and pay raises will be needed to counter the rise in the 30-year fixed rate mortgage. It’s around 4.8% and likely to fluctuate in a range of 5% to 5.5% this year.
Another obstacle to overcome is the large inventory of unsold homes. Plus, new foreclosures and distressed sales are adding up to 3 million homes to the existing supply. Selling these homes -- often at deep discounts -- will result in a drop in prices of about 3% by summer. The final tally on foreclosures in 2010 will total around 1.8 million, and foreclosures will hit about 2 million in 2011.
Look for housing starts to increase to about 675,000 this year, versus 590,000 in 2010, as the economy adds about 2.5 million net new jobs. Reaching 1 million starts will likely have to wait until 2013.