Dim View of Housing Market Weighs on Economy

Wednesday, 16 Feb 2011 09:21 AM

 

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Optimism is in short supply among U.S. homebuilders, a sign that the depressed housing market will slow the economy's gains this year.

The outlook by builders hasn't improved since the fall, when new-home sales were in the midst of their bleakest year in a half-century.

Less home building means fewer jobs for the economy. Construction work now accounts for about 5 percent of the nation's private employment. But nearly 2 million of the roughly 14 million unemployed Americans previously worked in construction.

Analysts say the economy needs to accelerate job creation before the housing industry can fully recover. Without more jobs and higher wages, home sales will stagnate.

"We probably won't see a strong recovery in construction jobs anytime soon," said Sal Guatieri, senior economist BMO Capital Markets. "Not a lot of people are showing up to builders' lots, not even to kick the tires. We just have to wait it out."

The National Association of Home Builders' index of builder sentiment for February was unchanged for the fourth straight month, at 16, the association said Tuesday. Any reading below 50 indicates negative sentiment. The index hasn't topped 50 since April 2006.

On Wednesday, the Commerce Department will release its monthly report on the number of home construction in January. The consensus view of economists is that builders broke ground on a seasonally adjusted annual rate of 535,000 homes last month. That's barely half the pace that economist view as healthy.

Homebuilders are struggling to compete with waves of foreclosures that are forcing prices down. Banks foreclosed on more than 1 million homes last year, and this year's figure is expected to be higher. Last year was also the worst in more than a decade for sales of previously occupied homes.

High unemployment, tight lending standards and uncertainty about prices have kept many would-be buyers away. Mortgage rates had been at their lowest levels in decades but have begun to climb. The average rate for a 30-year fixed mortgage just topped 5 percent for the first time since April.

Outside of housing, most signs point to a strengthening economy. The unemployment rate, now at 9 percent, fell over the past two months at the fastest pace in 50 years. Layoffs have sunk to their lowest levels since 1993. Economic growth is rising. And people are spending at the highest levels since 2006, when the housing market went bust.

Further declines in home prices could make people feel less secure with their finances, slowing spending and broader growth.

"It could be a fairly bad drag on the greater economy, one that would not be so easy to pull out of," said Dean Maki, chief U.S. economist for Barclay's Capital.

New-home sales represent only a small fraction of overall sales. But they drive job growth in construction. Each new home built generates, on average, the equivalent of three jobs for a year and about $90,000 in taxes, according to the homebuilders' group.

More jobs would spur demand for new homes. Increased sales would help clear some of the excess supply. Prices would stabilize, consumer confidence would rise and prices would gradually increase.

But with prices falling in most U.S. cities, new homes are less likely to be built.

"It's very hard to make a living when homes are being sold at fire-sale prices," said Patrick Newport, an economist with IHS Global Insight. "The economy's got traction, so the housing market should improve. But the numbers right now across the board are at rock-bottom levels."

Chris Schoonmaker, vice president for sales at S&A Homes in Pennsylvania and West Virginia, said he has seen a spike in the number of people looking to buy custom-built homes in Pittsburgh and State College, Pa. But he doesn't expect to hire until the housing industry achieves a full-blown recovery.

"Our goal this year is to hire back in a few spots, but we'll be very conservative with that," he said.

Analysts say the housing market should show some signs of revival this year. But it will likely be uneven. The latest regional data showed builders are becoming more optimistic in the Northeast and South but less hopeful in the Midwest and West.

"There are signs that we're starting to claw back from the bottom," said Carl J. Riccadonna, a senior U.S. economist with Global Markets Research. "As long as it's flat-lining during the winter, it's the spring that will tell the tale." Spring is the peak time for home-buying.

The latest builder sentiment report reflects a survey of 424 residential developers. They are more optimistic about single-family sales now and over the next six months than they were in January, even though foot traffic by prospective buyers remains fairly flat.

The world's biggest home-improvement retailer, Home Depot Inc., said Tuesday it plans to hire more than 60,000 seasonal workers to help with the busy spring season. But those hires, which are similar in number to the company's staffing levels last year, are tied to a seasonal promotion focused on flowers, vegetables and lawn care products.

Jill Didonna, division president for GL Homes, a Florida builder, said she is "cautiously optimistic" that buyers will be found for two master-planned communities set to open soon in Del Ray Beach and Naples. But that doesn't mean she's going to hire anytime soon.

"We don't see us expanding, but we don't see us contracting," she said. "We haven't reduced staff since 2006."

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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