Ten Predictions for the Housing Market

By Dawn Wotapka  January 20, 2012

Last year, David Goldberg, UBS’s home-builder analyst, issued 10 predictions for the housing market.

So, how did he do? “I never pat myself on the back, but I think we were pretty close,” Mr. Goldberg tells Developments. “We had a good year.”

As predicted, tough underwriting standards constrained demand and home prices remained weak. There was indeed a lot of “blustering about” for the need to reform mortgage giants Fannie Mae and Freddie Mac and the FHA, but not much happened. He said he didn’t expect much to happen with the mortgage-interest deduction — and nothing really did.

Mr. Goldberg says 2012 should include a modest recovery. “I’m more bullish today than I have been in the last five years,” he says. Here are his predictions for this year (along with our thoughts on a few):

Prediction: Single-family housing starts will grow by approximately 5% to 10%, marking the first year in the last seven that starts will have grown meaningfully. Multifamily starts will accelerate at a faster pace.

Developments says: Yes, although it’s worth noting that multifamily starts were down in December.

Prediction: With community-count growth ranging from 5% to 10% year-over-year, builders will see order growth as high as 20%.

Developments says: Some builders have already reported that orders are up — Lennar’s fourth-quarter orders jumped 20% — as buyers slowly move off the sidelines. Remember that these gains come off of low levels.

Prediction: New-home prices will be flat in 2012, while distressed prices have basically bottomed.

Developments says: With some home values down more than a third from the peak, stable prices would be good news. Builders have had to cough up thousands of dollars of freebies to entice buyers.

Prediction: Mortgage standards won’t loosen until 2013 at the earliest; when they do, look for private lenders—as opposed to the GSEs or the FHA—to lead the way.

Prediction: Government support for the new-home market will be slightly better than “do no harm”. … Even if efforts are more robust than expected, they will be focused on the existing-home market.

Developments says: Home builders, which make up a small percentage of the overall sales market, are quietly grumbling that they aren’t receiving much attention these days. Keep in mind, of course, that they received large tax refunds and got a tax credit for buyers.

Prediction: While many believe that record affordability should drive sales, mortgage availability will constrain owner-occupied demand over the next couple of years. (This seems similar to #4.)

Prediction: With volumes growing and prices stable, Mr. Goldberg doesn’t forecast significant book value — essentially the assets minus liabilities — loss in 2012. … In some of the better-positioned companies, book value could increase for the first time since the downturn.

Prediction: Shares of home builders will see higher highs and lower lows as expectations reset.

Prediction: There won’t be public-to-public M&A activity in the coming year.

Developments says: This makes sense — with the exception of the Pulte/Centex debacle — since mergers have been rare. Builders have been more focused on surviving and returning to profitability.

Prediction: There are trends that will work against an acceleration in home ownership in the near term. “We’re often confronted by perma-bulls focusing on long-term demographics—which we actually believe in,” Mr. Goldberg writes.

Developments says: For now, many Americans still don’t have jobs, lenders remain picky with applicants and plenty of people remain afraid to buy homes.

So, how will Mr. Goldberg do?

Realtors in Dalton get pep talk on economy

  by Ellis Smith

DALTON, Ga. -- Few metropolitan areas suffered as much during the recession as Dalton, which depends heavily on the carpet industry for its livelihood.

The carpet industry, in turn, relies on new home construction for carpet sales, a dependency that drove the city's growth a decade ago and yanked it back to earth during the recession.

Unemployment now is higher than in any other metropolitan area in Georgia, and sales of local houses have plummeted.

That didn't stop the CEO of New Jersey-based Coldwell Banker, Jim Gillespie, from visiting real estate agents in Dalton on Thursday to rekindle their spirits.

Gillespie told Realtors that though 2012 won't be a barnburner, he believes that barring some unforeseen incident, the year will at least remain stable.

"We're on the right trajectory," he said.

Though new home construction in Dalton has slowed since the real estate crisis hit, there are signs of life returning to the carpet capital.

Investors are buying more than 20 percent of all houses sold, a signal that houses are perceived as a safer investment than stocks or bonds.

The average rate on fixed-rate mortgages rose this week for the first time this month, but the rate on 30-year home loans remained below 4 percent for the eighth straight week. Combined with lower home prices, housing affordability is the best in more than a decade.

"Right now is the greatest time to buy if you have a job," Gillespie said.

The Federal Reserve System signaled this week that interest rates will stay low through at least 2014 to spur borrowing, giving buyers a window to move on their first purchase. Nationally, more homebuyers pulled the trigger in 2011, as home sales rose 1.4 percent, he said.

But even Gillespie, a strong believer in the viability of housing, admits that there are still rocky times ahead.

He expects between 1.8 million and 2.2 million additional foreclosures this year, as banks move through the backlog of homeowners who are chronically late on their loan payments. The trend could bleed into 2013, he said, putting off a full recovery until 2014.

And new home construction, which traditionally has led the country out of economic malaise, may not pick up for years.

With home prices down another 0.6 percent in 2011 if distressed properties are excluded, builders have no real incentive to start new construction until the profit picture brightens.

"We're not going to see an appreciation in home value until the foreclosures are over," Gillespie said. "Is it going to be gangbusters this year? No, but it's slowly, slowly moving."

Protesters take message to Hampton bank customers

Posted: Jan 20, 2012 1:19 AM EST

By STEVEN REILLY

HAMPTON -- A core group of members from the Northwest New Jersey Progressive Alliance braved chilling temperatures Thursday to stage a small protest at the Chase Bank branch on state Route 206 to bring attention to legislation in Congress that would grant amnesty to the banking industry for failed home loans.

Patt Reid, an Occupy Newton grassroots organizer for the alliance, was joined by a handful of protesters also to gather signatures for a petition to block any legislation that would grant immunity to banking officials involved in the 2007 housing market crash.

"The banking industry took trillions of our tax dollars for a bailout and turned around to give it away in bonuses to their CEOs. Now they don't want to take responsibility for any of it," Reid said. "Foreclosures are still out of control, with a lot of irregularities and robo-signing, and the banks won't even try to negotiate with people who are underwater on their mortgages. They have to be held responsible for the mess they caused."

The protesters passed around a petition to customers of Chase Bank that calls for the attorney general of New Jersey, Jeffrey Chiesa, to join attorneys general from California, Delaware and New York in fighting the amnesty legislation in Congress that would allow banking officials to avoid prosecution for fraudulent home loans.

"They should not be allowed to skate on this crime," Reid said. "They took our tax dollars for their big bonuses while people are still losing their homes. They need to be held accountable."

Most bank customers were intrigued by the protest, but chose to avoid signing the petition, opting to give a wave or a honk of their horn as a gesture of support.

"We got a lot more honks than fingers today," Reid said.

Mike Marcino, a resident of Newton, was at the bank to conduct some transactions during the height of the protest.

"I have a lot of sympathy for the people who are losing their homes. I think the banks should find a fair way to work it out with their customers without taking our tax money to fix it," Marcino said. "Let's face it, banks are businesses, and the bottom line for any business is to make money. I don't think it is up to our government to give our tax dollars away so they can make millions."

A request for a comment from Chase Bank was not returned.

Reid said Occupy Newton and the Northwest New Jersey Progressive Alliance are planning similar protests around Sussex County each month leading up to the presidential election in November.

Housing a drag on growth

Written by DOUG WILLIAMS The News Journal Jan. 11, 2012

The economic recovery in Delaware and the Philadelphia region continues to trudge along slowly, with evidence that the dormant housing sector is holding back stronger growth in manufacturing, banking and consumer goods sales.

Manufacturers, retailers and auto dealers say modest growth continues and prospects for hiring appear to be brightening in auto sales, health care and energy-related industries, according to the Beige Book report released Wednesday by the Philadelphia Federal Reserve Bank.

But housing and commercial construction and leasing still are struggling, and officials from companies in those realms have the bleakest outlook going into 2012.

The regional report is in line with the Fed's national report, which found that economic expansion improved last month across most of the country while hiring was limited and housing remained stagnant.

"The reports on balance suggest ongoing improvement in economic conditions in recent months," the Fed said. "The combination of limited permanent hiring in most sectors and numerous active job seekers has continued to keep a lid on general wage increases."

Growth in the Philadelphia region, which includes Delaware, Pennsylvania and New Jersey, was modest at best. The region has regained its footing since spring and summer, when its results were weaker than those in many of the Fed's other regions.

"Manufacturing activity has continued to grow modestly, retail sales overall generally increased for the holiday season and car dealers experienced further strong sales growth and strong pricing power," according to the report.

Manufacturers reported modest gains in orders and shipments, and most said they saw little sign of inflationary pressure. Those making goods related to the housing sector voiced the most pessimism.

Retailers said they had a strong holiday shopping season, although customers were looking for discounts so profits were stressed. Of retailers, the most optimistic were auto dealers, who hinted of some plans to hire should sales continue at the present pace.

The auto dealers said there seems to be considerable pent-up demand that not only is keeping the sales pace relatively strong but also is allowing them to avoid heavy discounting or incentives, adding to profit margins.

The outlook was less positive in the banking and service-industry sectors, where growth remains sluggish. Both tend to rely on housing-related business, and that sector continues to suffer.

Builders said their late-year business was soft -- worse than is normally the case in winter, when sales traditionally dip. Prices continue to erode, leaving some buyers leery of going forward with a contract.

Builders and sellers of existing homes remain pessimistic going into 2012.

Aside from some signs of possible hiring in the auto sector, the employers contacted by the regional Fed planned to either stand pat or expand their use of temporary workers or contractors.

Nationally, the report reinforces the views of a majority of Fed officials, who see an economy that's expanding without being strong enough to reduce joblessness as quickly as they would prefer. The unemployment rate dropped to 8.5 percent in December from 9.4 percent a year earlier. Delaware's rate fell in November to 7.6 percent, its lowest level since March 2009. December data are due in two weeks.

New York Fed President William C. Dudley said last week that the "outlook for unemployment is unacceptably high" and that it's "appropriate" for the Fed to consider steps to ease monetary policy, he said.

The Beige Book said that "upward wage pressures were modest overall" for workers across the U.S. The Labor Department said Jan. 6 that 200,000 jobs were added to payrolls in December, the most since September. The jobless rate declined for a fourth straight month to the lowest since February 2009.

Even so, the residential real estate market "largely held steady at very low levels" except for increasing construction of multifamily homes, the Beige Book said. The rental market "tightened in some areas," the report said. Both trends were evident in the Philadelphia regional report.

Lending "edged up overall" on higher demand from businesses, with the New York and Cleveland regions reporting increased loans in commercial mortgages, the Fed said. Consumer lending "was largely flat compared with the prior reporting period," the central bank said.

Corker opposes write-down of mortgage principal

By Vicki Needham - 01/10/12 12:00 PM ET

A Tennessee Republican is concerned that taxpayers will bear the burden of costs if mortgage giants Fannie Mae and Freddie Mac write down the principal on mortgages in which the borrower owes more than the home is worth.

Sen. Bob Corker (R) sharply criticized recent comments made by New York Federal Reserve President William Dudley urging Fannie and Freddie to do principal reductions for homeowners who are underwater on their mortgages.

“Reducing the principal on home loans for borrowers who put no money down amounts to a massive wealth transfer from places like Tennessee, where most homeowners have borrowed responsibly, to places like California and New York, where exotic mortgages were widely used to finance a speculative housing boom,” Corker told the Greater Nashville Association of Realtors on Tuesday. 

“It is absolutely egregious that the Federal Reserve would insert itself in this manner and ask people in Tennessee who played by the rules to bail out reckless borrowers in other parts of the country," he said.

In a recent speech to the New Jersey Bankers Association,Dudley advocated the use of "accelerated principal reduction" by Fannie and Freddie as a primary type of loan modification to help slow housing-price declines.  

However, Corker said the policy will create long-term damage and will not only result in taxpayer losses but possibly higher interest rates. 

In November, Corker introduced legislation on how to unwind government-controlled Fannie and Freddie and gradually end dependence on the government for housing finance. 

The Treasury Department and other lawmakers have floated ideas on reducing Fannie and Freddie's involvement in the mortgage industry but no agreement has been reached on the process while the housing market regains its footing. 

On Jan. 4, the Federal Reserve released a 26-page white paper with its recommendations for policy changes to stabilize the housing market and boost the broader economy. 

Although the paper did not outline any specifics, it suggested in a round-about way that the government regulator — the Federal Housing Finance Agency — reduce mortgage balances, a step backed by Democrats but generally opposed by Edward DeMarco, the housing overseer. 

The paper said in regard to principal write-downs that "some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery."

DeMarco has maintained that cutting mortgage balances would add on to the already high taxpayer cost of rescuing Fannie and Freddie.

During a hearing in November, he said his agency has looked at the issue and "concluded that the use of principal reduction within the context of a loan modification is not going to be the least-cost approach for the taxpayer."

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