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Economists Say Housing Outlook Continues to Slowly Brighten

Economists say housing outlook continues to slowly brighten modest declines in the latest housing data are more reflective of typical month-to-month volatility in the numbers and unusual seasonal factors than they are an indication of any significant downward trend in the broader housing market, said NAHB Chief Economist David Crowe during the association's well-attended Construction Forecast Webinar this past week. Dr. Crowe cautioned against reading too much into the latest declines, and pointed to the fact that less volatile quarterly data have continued to show modest improvement in key housing indicators such as builder sentiment and new-home sales. "The aggregate information suggests we're just in a pause mode right now" in terms of these measures, which could partly be the result of an early spring that brought much better weather than usual into the picture at the start of this year and pulled some housing activity forward, he said. Citing consistent declines in unemployment, "reasonably strong" personal income data and continued GDP growth, our expert forecaster noted that numerous other fundamentals remain positive for housing at this time, including demographic factors (with pent-up household formations expected to ramp up and echo-boomers heading into their prime household formation ages), historically favorable mortgage rates that aren't expected to move much higher than 5% by the end of next year, and the fact that the house-price-to-income ratio has now returned to its historical average of about 3:1 versus the nearly 5:1 to which it had previously risen. Dr. Crowe particularly emphasized the differences that exist between local housing markets. "The national recovery will be dependent upon individual locations," he said. Pointing to the 101 metros currently listed on the NAHB/First American Improving Markets Index, he indicated that small markets across the country are driving this list and said that because these metros tend to have smaller volumes of housing production, their improvements aren't yet registering on the national scale. March New-Home Sales Decline Following Strong Upward Revision Sales of newly built, single-family homes declined 7.1% to a seasonally adjusted annual rate of 328,000 units in March from an upwardly revised, robust pace of 353,000 units in February, according to government figures released on April 24. On a regional basis, the Northeast and South posted gains of 7.7% and 3.1%, respectively, while the Midwest and West registered 20% and 27% declines, respectively. The nationwide inventory of new homes for sale continued to shrink in March to a new record low of just 144,000 units, which is a 5.3-month supply at the current sales pace. Commenting on the latest numbers, NAHB Chief Economist David Crowe pointed out that the March decline is from a stronger-than-expected sales pace in February and that first quarter 2012 new-home sales were 3.7% stronger than sales in the final quarter of 2011. "This is exactly the kind of modest, but substantive, growth that we are expecting to see in the year ahead along with gradual firming of the economy and job market," he said. He also noted the possibility that the lower March figure may have resulted from some sales activity being pulled forward due to exceptionally good weather conditions in February.

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  • Joanne Loftus
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