ORLANDO, FL - Employment numbers seem to be improving, but tight lending standards and large home inventories are sending a clear signal to homebuilders to restrain building activity in 2011.
According to a recent report by the Portland Cement Association (PCA), the U.S. will record 492,000 housing starts in 2011, a modest 3.4 percent gain compared to 2010 levels. This will increase significantly in 2012 with a 40 percent jump in start activity. In addition to tight lending standards, a high home inventory count and unstable housing prices are holding down the market. Foreclosure activity plays an important and direct role in determining timing of a recovery.
"High inventory levels are expected to be characterized by a large portion of bank-possessed properties," Edward Sullivan, PCA chief economist said. "Banks are not in the realty business and will offer the homes below prevailing home market prices to remove the financial liabilities of possessed homes from their books. These homes, some nearly new, compete directly with new homes for the homebuyer – putting downward pressure on new home prices."
Unlike the construction economist consensus, PCA believes that the foreclosure environment, adding to inventories and depressing prices, will largely offset the favorable conditions arising from employment gains and affordability improvement expected in 2011.
Even with expected improving national economic conditions, Sullivan predicts the growth construction will vary considerably by region.
"Different regions of the country have very unique conditions for re-starting their housing industry. Slower growth will be seen in the Great Lakes region where many homeowners participated in the exotic mortgage trend. The central U.S., from the Dakotas to Texas will lead the housing recovery. This region has benefited from an economic tailwind due to higher commodity prices, plus the region has the country’s lowest home repossession rates and relatively strong labor markets."
The Southeast and Southwest housing markets remain in recession with new home construction trends once again approaching previous lows following the slight run-up during the home buyer tax credit expiration. Despite increased job growth expected to emerge in 2011, the large volume of distressed homes and foreclosure inventory will keep a lid on new home construction throughout 2011 and delay the recovery until 2012. Longer-term however, these markets are expected to be growth leaders given their favorable demographic trends and already lean inventories in terms of new home construction.