No Signs of Recovery for Housing in 2012

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By: James Oliver

President, Highlander Construction & Development

Recently I was asked by Sarah Cox, reporter and writer for the Roanoke Times, to give my thoughts on the forecast for housing in 2012.  I am not sure if my comments will make it to print but I thought I would share them in our blog for those who might be interested.

I for one am not very optimistic about the prospects for an improving housing market in 2012, or 2013 for that matter.  As everyone is aware housing has been through the perfect storm over the last few years.  A natural down turn of the housing market (as happens every so often in every industry) was compounded and amplified by the recession, the banking crisis, bad government policy, misapplied regulation, out of control and expensive changes to the building code, bad behavior by greedy Wall Street speculators, poor buying decisions by consumers who bought more than they could afford, access to easy credit which required virtually no equity down and enabled unqualified consumers, poor appraisals leading to inflated values, excessive taxes and fees on housing so local governments could get their piece of the pie, and over building by building industry professionals who saw no end in sight to the huge profits which were rolling in.

A normal downturn takes 1-3 years for the industry to recover.  In my opinion, this deep downturn is still 2-4 years from a recovery once we hit bottom which I fear has not yet happened.  Here’s why:

  • Fannie Mae and Freddie Mac are still a disaster losing billions each quarter.  There will be no significant improvement in the housing market until the problems and policies of these two semi government agencies are corrected including stopping the practice of propping up bad loans and stalling foreclosures.  There is still a lot of bad paper out there that needs to be wiped out.  This will be painful, but necessary before a recovery can begin.  Right now there is no consensus between the two major political parties about changes to Fannie Mae and Freddie Mac.  If the Federal Government remains divided after the elections of 2012 I think the housing market will take an even bigger hit which in my estimation will lead to a double dip recession.
  • Federal Regulators have over corrected with massive and crushing new oversights which will result in only those who don’t need loans being able to get them.  The Dodd-Frank Bill may single handedly destroy every small community bank in the Country and is an albatross around the neck of the housing market.  Dodd-Frank needs major revision or to be repealed.
  • Due to increased regulation and the pressure by the Federal Government to increase their balance sheets, banks are simply not lending nor will they until the stop being able to borrow money from the Federal Reserve at zero percent interest then buy Government Bonds for a three percent return.
  • Reasonably qualified consumers need access to credit and it is not out there right now.  I am not suggesting we return to the days of easy credit and no equity down but somewhere in the middle.
  • Consumer confidence is the single most important key to the selling and buying of new and now existing homes.  People without jobs or in fear of losing their job do not buy houses.  Without an improving job market and general economy there can be no recovery.
  • Appraisers have also over corrected and now seem to be unable to make fair assessments of the true cost of producing housing.  I hear from all sides of the industry that appraisers are greatly contributing to the stagnated housing market by killing deals with low ball appraisals.  Reform of their processes of determining values and comps is desperately needed.
  • Local governments need to find ways to reduce the taxes and fees on housing instead of trying to cash in on what was once considered the golden calf.
  • Final point:  Because of the wide gap between the pricing of existing housing versus new housing Consumers are no longer considering new housing as a viable alternative when they want a new house.  In the foreseeable future only those who want a true custom house will likely choose to build which will further serve to shrink the housing market.

For all these reasons I don’t see housing or other non-government related construction making a come back any time soon which is sad and disappointing especially since I consider myself to be an optimist.  I estimate a normal and health construction industry would reduce the national unemployment rate by two percent.  You would think our national leaders who are seeking re-election from both parties would recognize this fact and do everything they can to get housing (and construction) moving again, but they seem clueless.

What is the silver lining?  For well qualified purchasers (lots of cash and credit scores over 750) this remains a buyer’s market with lots of deals to be had.  For the rest of us, it’s tough times for the foreseeable future – kind of like the groundhog seeing his shadow over and over and over again.  I wish I had a better forecast for our industry, but that’s how I see it – 6 more years of a very cold winter.

Resources from the web:

http://www.cnbc.com/id/45477559