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?

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