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Housing Recovery may be Losing Some Steam

April 8th, 2014    •  

Consumers in Some Housing Markets may be Losing Confidence

The real estate market recovery started in earnest at some point in 2012, as home prices began to increase after a half decade of post-bubble flat lining. However, even as prices rose, the building industry remained on the sidelines, waiting for the market to work through the mass of foreclosed inventory that was holding it down.

At one point, experts forecasted that continued population increases and a recovering job market would mean that the U.S. would once more have to begin creating brand-new residences. Goldman Sachs analyst Tom Teles wrote in November:

“We expect construction to increase because of a substantial decrease in the housing supply. Household starts have actually lagged population growth since 2008, causing restrained real estate demand and under building of brand-new homes.”1

“Earlier the Census Bureau released data showing that, on a seasonally-adjusted basis, just 880,000 new residences were actually begun in January, 16 % below the revised December estimate of 1,048,000 and 2 % below the January 2013 rate of 898,000.”2

This comes on the heels of data indicating two straight weeks of decreases in mortgage applications and a statement from the National Association of Home Builders showing that its housing market index decreased from 56 in January to 46 in February. Any reading under 50 shows that builders really feel that business conditions are relatively poor.

Why hasn’t the already anticipated boom in housing building come to fruition? One explanation is the weather conditions. The real estate industry is slow throughout colder months, and these winter months have been harsher than many for big parts of the nation. Jed Kolko, chief economist at real estate website Trulia, tried to estimate how much the weather should slow down real estate activity data being released. The result? Not as much as you would expect.

“Koklo suggests that while January was cold, it wasn’t one for the record books, as places like New York experienced colder Januaries in 2003, 2004, and 2009. Kolko discovered that despite the fact that parts of the country have actually experienced extreme weather conditions, most of the real estate activity in the U.S. takes place in parts of the nation that were largely unaffected by severe weather conditions. Kolko writes:

The South and West, together make up most real estate activity in the U.S. Combined, those 2 regions made up 76 % of national building starts and 64 % of existing home sales in December. January’s harshest weather, however, was not where many of America’s real estate activities are concentrated in.”1

Kolko says that we ought to anticipate extreme winter season weather to have only a mild effect on construction data. In other words, the information presented here needs to be of some concern to those of us who were hoping that a building boom would help job growth and financial recovery in 2014.

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This information is intended to be used as a general guide. It is not intended to constitute legal advice and is not a substitute for the advice of an attorney. While every effort has been taken to present the information accurately, this document may not be infallible. No warranty is made that these materials are current, complete, accurate, or suitable for any particular purpose. You should seek advice from your attorney before proceeding with any real estate transaction.

Source(s):

1. Is the housing recovery losing steam, Christopher Mathews, February 19, 2014, CNN News, http://finance.fortune.cnn.com/2014/02/19/is-the-housing-recovery-losing-steam/, Retrieved 3/3/14

2. Census Bureau

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