The “Great Recession” Moves On
The Experts Believe the Recovery Has Started
Don Johnson, HPBA Director of Market Research
Economists and housing and remodeling experts making presentations at two recently concluded industry conferences all believe that the U.S. economy has entered the recovery phase of the so-called “Great Recession.” Speakers at The National Association of Home Builders Spring 2010 Construction Forecast Conference and at Harvard University’s Joint Center for Housing Studies Remodeling Futures Conference all agree – the U.S. economy, including the housing and remodeling sectors, are starting to recover.
Just the titles of some of the presentations tell the story. One was entitled, The Housing Crash is Over (Nearly). Another was entitled, U.S. Recovery Well Underway. A third was entitled, Healthy Rebound for Remodeling Expected in 2010. Evidently, things are beginning to look up compared to the recent past.
There are a number of positives at the moment. According to the housing experts, home prices, both for new and used homes, have stabilized or even started to grow in many markets. Mortgage rates are at historically low levels and are likely to stay relatively low for the next few years with only gradual increases expected as the market expands. Household formation, which had leveled off, or even declined, during the recent downturn, is also starting to improve. The aging of the U.S. population will also likely increase demand for housing again, some pointed out. Immigration, which many believe declined during the bad times compared to the recent past, has also started to pick up. Home affordability is at record high levels. All are factors in stimulating the demand for housing. In fact, housing starts, building permits, and new and used home sales have all recently started to improve from historically low levels.
The overall U.S. economy is also improving, the experts believe. GDP has started to grow again and will likely continue to grow at an acceptable rate for the next few years. Consumer retail sales have started to pick up, indicating that U.S. consumers are beginning to feel better about their overall financial situation. The stock market, compared to a year ago, is also up. Unemployment, while high, appears to be beginning to fall, with most of the economists forecasting slow and steady improvements over the next few years. All the experts believe that the Federal Reserve’s interest rate policies will continue to try and stimulate the economy with continuing low interest rates, rather than rein things back to control inflation by raising interest rates.
This is not to say that everything is rosy, with no clouds on the horizon. Far from it, the experts pointed out a number of times. Obtaining credit to purchase a home is still very, very tight and difficult to get in some markets simply because of tightening standards by lending agencies. Credit is also very tight for small business in general. Unemployment is still very high and is expected to improve more slowly than many would desire. Recent government programs like tax credits for purchasing homes are also about to expire which will not help the situation, at least in the short term. Foreclosures also continue to be a problem – a large number of foreclosed homes in an area tends to reduce the value of all homes in an area while encouraging lenders to lend less money and further tighten lending standards.
The financial troubles in Europe also negatively impacts the U.S. economy, some economists pointed out, but probably not to a significant degree. In fact, one economist noted that Europe may fall back into a recession, but he did not feel that the U.S. would follow. Two experts also mentioned that the overall U.S. debt is growing and will eventually put a drag on the economy unless government spending is reined back and tax revenues are increased – a likely, although manageable scenario for the future, according to another noted economist.
The economists and experts all generally concurred – the recovery has started, but it is going to be slow and it will take some time to get back to “normal.”
The remodeling industry, generally speaking, is facing many of the same issues that the U.S. housing industry is facing. But, as one of the remodeling experts pointed out, the remodeling sector of the U.S. economy has not been impacted as hard as the housing sector, and will likely improve a little more quickly than the housing sector.
One noted remodeling economist simply stated, “The gradual recovery in the broader economy should encourage more remodeling spending by owners.” Another stated, “With house prices showing modest gains in most markets and the employment outlook beginning to stabilize, owners are likely to refocus attention on home improvement.”
The situation in the remodeling industry is a little different, some of the experts pointed out, than compared to past historical trends. In the past, remodeling trends would follow U.S. housing trends – when the value of homes increased, remodeling activity would also increase and when the value of homes did not increase, or remained stagnant, then remodeling activity would also not increase. This was primarily related to two things: (1) when people purchase a home they tend to spend money on remodeling right after they move in and (2) when the value of a home increases, a consumer feels more comfortable putting money into the home for remodeling. In both cases, a good, strong economy helps stimulate remodeling spending.
The fact that remodeling has not been impacted as much as housing, and will likely recover a little faster than the housing sector, is a little different this time around, one noted expert in remodeling pointed out. The expert speculated why this may be occurring. Perhaps consumers believe that they will simply have to live in their current homes longer and feel justified that the remodeling efforts are necessary. Or perhaps they feel more comfortable putting money into their homes, rather than into other “investment” vehicles such as the stock market. In all likelihood, the expert believes, things will go back to “normal” when the economy fully recovers and the U.S. housing sector will again become a leading indicator for the remodeling industry.
In any event, the remodeling industry will likely improve as this year continues. One expert specifically forecasted “continued acceleration of remodeling activity through 2010 and into the beginning of 2011.” Another remodeling expert simply stated that “home improvement spending will recover this year.”
Things are beginning to look more positive. It’s nice to see after such a long and difficult downturn.