Housing emerges as economic bright spot after years in the dark
By Ylan Q. Mui,
The nation’s housing market is surging again after years of historic declines, and the unique forces powering its return could last well into 2013.
The number of homes for sale is at its lowest level since before the recession, sparking competition among buyers that has led to 10 straight months of price increases. The volume of activity is the highest since 2007.
Builders broke ground in December on the most new housing developments in four years. And interest rates on mortgages are expected to remain near all-time lows through much of the year, galvanizing once-skeptical buyers.
Together, those factors have helped the beleaguered housing market regain its footing and emerge as one of the economy’s bright spots this year.
“I said to my husband, ‘We’ll never see this again in our lives,’ ” said Tracy Lamb, who recently purchased a three-level home in Gainesville, in Prince William County. “I really did feel like we were going to miss out.”
Industry experts caution that the market’s recent strength does not signal a return to the heady days of the housing boom. Nearly 11 million homeowners are still underwater, owing more than their homes are worth, and prices remain well below their peak in 2006. Government data showed a larger-than-expected drop in the pace of home sales last month. The Federal Reserve has begun debating when to withdraw support for the mortgage market, and economists expect interest rates to rise before the end of the year, potentially tempering demand.
But there is growing consensus not only that the bottom has been reached, but that the housing recovery is real. In the Washington area, that translates into construction crews again mobilizing in some of the region’s hardest-hit counties. In Lamb’s burgeoning community of Madison Crescent, workers shrugged off the snow last week to install wiring and plumbing in a row of new townhouses. The single-family homes across the street sold out this month.
The return of real estate marks a key milestone in the country’s economic recovery — and not only because it was at the root of the collapse. A healthy housing sector could boost gross domestic product by more than $400 billion, based on housing’s historical portion of the overall economy. It is also a major source of new jobs in construction and indirectly supports industries as varied as retail and local government.
Mark Granville-Smith had planned to build a high-end community called Gaslight Landing on the banks of the Occoquan River in Prince William, where his company, Classic Concept Builders, has worked for more than two decades. He sold six units during the height of the housing boom — then the project stalled as the industry imploded. With the county processing as many as 700 foreclosures a month, there was little appetite for luxury townhouses with elevators and boat slips and price tags reaching nearly $1 million.
But Granville-Smith said he began getting calls from interested buyers again this past summer. So he called the construction crews back to work and sold four homes within three months. He recently got a request from a prospective purchaser in Michigan for a waterfront lot.
“The market’s reached a price point where it’s economically feasible to build again,” Granville-Smith said. “We’ve gotten a tremendous amount of interest.”
Housing historically accounted for an average of 4.8 percent of the country’s economic output but has been contributing only about half that amount since the recession. The gap between the industry’s normal output and its current activity is $413 billion, translating into a 2.6 percent boost to GDP.
Particularly important is the role of new-home construction, a significant creator of jobs. Home construction jumped 28 percent last year, helping to drive a rebound in hiring in a sector that was decimated during the recession. An analysis by the National Association of Home Builders, a trade group, calculated that each new home generates as many as three jobs.
Local home builder Miller & Smith employed about 150 people during the boom, then slashed its staff to 80 in the midst of the bust. Now the company is back up to about 100 employees and hopes to hire four more this month.
“It’s been a difficult six years,” said Dale Hall, vice president of operations. “It’s been enjoyable to watch the turnaround.”
That doesn’t mean there haven’t been reality checks. The Mortgage Bankers Association reported that applications for mortgages dipped in December. Sales of existing homes also declined last month, though prices continued to increase. And an index of pending home sales fell 4.3 percent in December when economists had expected it to remain flat.
“We believe the disappointment represents just a brief lull in what are volatile data rather than a fundamental change of direction, but, of course, that remains to be seen,” said Jim O’Sullivan, chief U.S. economist at the consultant firm High Frequency Economics.
Part of the problem may be that many households, because of tighter credit requirements, are unable to take advantage of low interest rates. The Fed will probably discuss the state of the housing sector during its regular policy-setting meeting this week, though it is not expected to begin pulling back on its support of the mortgage market yet.
Some analysts say the weak December results are actually a symptom of limited supply rather than slackening demand — the inventory of homes on the market dropped 8.5 percent last month to the lowest level since May 2005.
In addition, the pipeline for new homes has been constricted. In Prince William, for example, government data show that more than 5,000 applications to build new homes were filed in 2004. Last year, that number was about 1,200.
Hall said his company has focused on finishing projects started during the boom. It is scouting for sites to build new developments, but the permitting and approval process can take two years or longer.
Buyers may not be so patient. Traditionally, the real estate season does not start until March. But Hall said Miller & Smith has already booked 40 home sales this month, making it the company’s best January since 2005.
“I think the kickoff has already started,” he said.
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