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Economist: Housing recovery like waiting for paint to dry

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The housing market is anxiously waiting at the starting line for the gun to fire, and for buyers and sellers to start the race.

David Crowe, chief economist and vice president at the National Association of Home Builders, gave a national and local view of the housing recovery at the University of San Diego Burnham-Moores Center for Real Estate's 13th annual Residential Real Estate Conference: Outlook 2013 on Wednesday.

Low inventory, both nationally and locally, is making it difficult for buyers to purchase a home.

“Part of the reason, and a great deal of the reason, why we sunk in housing production, sunk in consumer confidence, was because we didn’t have any demand,” Crowe said.

People didn’t become homeowners and instead “unbecame” homeowners, Crowe said, as result of financial distress, children staying at home with parents or living in a roommate situation, and fewer divorces, which typically create two households. At a high, there were 1.4 million households added per year, and Crowe said 1.2 million is a more normal rate. Now, the country is adding just 850,000 households per year and is “stuck” at 75 million homeowners, Crowe said.

But the country is moving from a lack of demand to a lack of supply in some areas, Crowe said.

“In fact, single-family production sales have been much better than existing sales, partly due to the fact that where there’s a tight supply, the only way to enhance that is to increase production. And so we’re beginning to see promising housing data on a national basis,” Crowe said.

Martin Conrad, regional vice president for the San Diego region at Coldwell Banker Southern California said “we’ve gone through the worst” of the cycle.

“March 2005 was the start of a tough time for us — I’ve been doing this since 1977 — I’ve never seen a market this tough, this long, this deep. It feels as if things are trying to break loose,” Conrad said. “People want to buy. Sellers would like to be able to move up. If we could get the financing where the underwriting is a little bit more practical and the jumbo, jumbo plus and jumbo conformings are a little bit more in reach for consumers — I think it would go a long way.”

Conrad said he has noticed an “inventory squeeze” in houses ranging from $315,000 to $700,000 and buyers are “fighting to find housing.”

“The mid-range would open up if they could, but they either have very low or under equity and just can’t move up,” Conrad said.

Those underwater homeowners may be waiting for prices to go up, build equity and sell. Eighty percent of homeowners who are underwater continue to make their mortgage payments, Crowe said. Nationwide, home prices are 17 percent below their peak. In California, prices are 43 percent below peak, Crowe said.

Paul Barnes, president of the San Diego division of Shea Homes, said his problem is the lack of greenfield development opportunities in San Diego County.

Nationwide, there was a 56 percent increase in multifamily unit production last year, and Crowe said he expects there to be a 30 percent increase over last year. Multifamily production is at about 70 percent of its normal rate, he said.

Single-family unit production is down to 41 percent of its normal rate, Crowe said.

Remodeling wasn’t as impacted as the rest of the economy, according to Crowe, and many single-family homebuilders moved into that market as a means to stay in business.

“It’s hard to look back and say we’ve improved, we have. … It’s one of those things where the paint dries — you just don’t realize it finally did," Crowe said. "So that’s what’s happening with production. Doing it at a slow enough pace, sometimes it’s hard to realize we’re improving, but we are.”

Consumer confidence has been increasing, which supports evidence behind a recovery. But consumer confidence dipped in late 2011 as a result of Congress’ inability to come to an agreement on the country’s debt obligation, Crowe said. A similar situation approaches with the "fiscal cliff."

“In our L.A. market, we’ve noticed a softening because people are worried about what’s happening, especially now that the election results are in. They’re pulling back and don’t know what to expect,” Conrad said. “The problems we’re facing right now are uncertainty over what’s going to happen with taxes, government regulation and whether or not underwriting is going to start loosening up.”

Sellers are waiting for the results of the looming "fiscal cliff," which has a “psychological effect” on the market, Crowe said. If the country does fall off the cliff, Crowe said it could result in a 4 percentage-point shift in GDP growth, moving the country into a recession.

“At the end of the day, I think in San Diego, there’s enough wind in our sails that regardless of what happens, we’re going to weather through it. It’s going to be a hill, not a cliff,” Barnes said.

Conrad said San Diego tends to come back fast and strong and hopes that’s what will happen over the next six to 12 months.

“I think it’s as simple as people in the middle saying, ‘I think I’m OK. I think it’s time to start looking. I’m feeling better about my job. I’m feeling better about the future of the state and now I’m ready to look,’” Conrad said. “The demand is there and the need is there. I think right now we’re waiting for the spark … all of a sudden it’s going to happen and no one is going to see it happen.”

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