News for Product Manufacturers from Hanley Wood CEO Frank Anton
The Worst Is Over
There have been five housing downturns during my 35-year career (I'm older than you think) in the housing industry. To some extent, each has been different (for example, high interest rates triggered the downturn of the early 1980s, and the tech bubble combined with 9-11 caused the slowdown in 2002). But every downturn has been the same in two ways. One, as the industry slips into decline, almost nobody can imagine how bad the market will get. Two, once the downturn takes hold, almost nobody believes the industry will ever rebound.
Certainly this downturn exceeded everybody's most pessimistic projections. It has been -- as my mother would say -- a real "doozy." It's the longest housing recession ever, and the almost 80-percent drop in housing starts from peak to trough is unprecedented. The 30-percent decline in housing prices is greater than the decline that took place during the Great Depression, and one-third of all of the jobs lost during this Great Recession were construction-related.
Ouch.
Now for the good news: The housing recession is over. I know there are doubters among you, so let me try to ease your doubts.
Yes, annual housing starts are still tracking at less than 700,000 units (about 50 percent of the 50-year average), but starts have risen every month this year and are more than 20 percent ahead of last year. In addition, the pace of housing permits issued points to continued recovery.
Yes, there's still a seven-month supply of unsold new homes, but that's down from a 10-month supply a year ago. And the actual number of unsold units -- about 230,000 -- is at a record low.
Yes, foreclosures are still a problem, but the problem is increasingly becoming isolated to specific markets in four states: Florida, Arizona, California and Nevada.
Yes, on a nationwide basis housing prices have continued to decline this year (albeit at a reduced rate), but in eight of the markets tracked by the S&P/Case-Shiller Home Price Index, prices are up year over year.
Yes, NAHB's Housing Market Index, which measures builder confidence, is still abysmally low, but it has risen four months in a row, and the mood at Hanley Wood's recent Housing Leadership Conference, attended by larger-volume builders, was decidedly upbeat.
Yes, the remodeling market has declined more than many had expected during this downturn, but the Harvard Joint Center for Housing Studies' quarterly index on future remodeling activity calls for a five-percent upturn in the fourth quarter.
Remember too: With inflation at a 44-year low, mortgage interest rates should stay at their historically low levels. The unemployment rate is improving. Housing affordability is better than almost ever. And there really is pent-up demand, especially among first-time buyers.
All of this suggests to me that the worst of this doozy of a housing downturn is almost certainly over. If I'm right, remember you heard it here. If I'm wrong, it's just a matter of timing.
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