The National Association of Home Builders today reported its first decline in homebuilders’ confidence in seven months, but that may be just a blip in the fledgling housing recovery.
“The housing crash is now over…and by this time next year, housing will no longer be a drag for the economy but a tailwind,” Mark Zandi, chief economist of Moody’s Analytics tells The Daily Ticker.
Zandi says this year’s spring selling season is off to a pretty good start, although by historic standards prices are still low. But that may not be all bad: Low prices means homes are more affordable to buy.
“House prices are now low enough relative to incomes that single family housing is about as affordable as its ever been in the data we have going back to World War II,” Zandi says.
Low prices also attract investor interest, which is helping to stabilize the housing market. “Investors can come in, buy homes, rent them, cover costs and look for a capital gain down the road,” he says.
Rising rents have been attracting those investors, but at some point they may compel consumers to buy homes.
“Another year from now if prices stay flat and rents rise another 4, 5 or 6%, then the decision to rent or buy will be firmly in favor of buying rather than renting,” Zandi says, adding that’s already the case in some parts of the country.
Demand to buy homes will also increase when potential buyers get a whiff of rising interest rates.
“At that point …. they will want to jump in and buy that home before they lose those very advantageous mortgage rates,” says Zandi. The rate on a 30-year fixed mortgage is currently 3.88%, according to Freddie Mac.
Until there is a substantive recovery, Zandi says housing will continue to be divided between a distressed market — filled with homes in foreclosure or on the verge of it — and a non-distressed market, which is holding up well. He also expects multifamily housing will continue to outpace the single-family market.
Zandi says the government could help accelerate the housing recovery by making it easier for homeowners to refinance and to reduce principal owed.
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