Editor's Note: This column is reprinted from the March editions of Oklahoma Builder Magazine
"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today." -- Lawrence J. Peter
By Phil Rhees
Even NAHB's terrific economist David Crowe will admit to the truth of that statement. Crowe has a wry sense of humor and entertaining presentation skill. With his Ph.D, he is not your average colorless economist.
Crowe gave a presentation to the NAHB Board of Directors at the International Builder's Show in Las Vegas, where he compared himself with weather forecasters who predict a few snow flurries, only to be proven wrong by a blizzard. Economics is not an exact science, but many factors taken together can predict the behavior of our economy. Sometimes.
At the IBS Board meeting, Crowe listed 10 reasons this year will be better than last. The charts that accompanied his presentation are on NAHB.org, under the IBS Board of Directors meeting materials, so feel free to look at them yourselves.
Just a disclaimer: I do not necessarily agree with everything he said, only the parts that turn out to be correct by the end of the year! Here is his forecast.
Much steadier growth will follow the recent recession. Gross Domestic Product reached a robust 5 percent in the third quarter of last year, and he expects the fourth quarter to report about the same. Even though that growth rate is unsustainable this year with the fall of oil and gas prices, he still expects GDP to grow at a rate of 3.4 percent this year.
We are seeing Average Monthly Job Gains of more than 250,000 per month, and that rate should stay consistent through this year, increasing consumer confidence.
Speaking of Consumer Confidence, it, and Consumer Sentiment, are finally reaching pre-recession levels, and should stay there through this year.
We are seeing Growing Pent-Up Demand, with more than 7 million lost sales since 2007. There is recent evidence that those people who lost their homes during the recession are nearing the point where they've cleaned up their credit, so that they might now qualify for a new mortgage. Also, Millennials who have been renting or living with their parents are feeling much more confident in the housing market and are beginning to finally buy homes.
Total Residential Home Equity is improving around the country, especially in the hardest hit areas like California, Phoenix, and Las Vegas. However, we all know that real estate markets are local, not national, and since Oklahoma prices stayed reasonably stable, we shouldn't expect a large bump in most areas of our state.
Household Balance Sheets are returning to normal, as many families have been focused on reducing their debt and increasing their savings. This trend is expected to continue through 2015.
Median Household Income is slowly, but steadily improving, and with the drop in gas prices, most families are feeling more breathing room when looking at their budgets.
Mortgage Credit Access is slowly improving, with signs pointing to continued easing. Fannie Mae and Freddie Mac recently relaxed their qualification standards a bit, which should help more families buy their homes.
Mortgage Rates remain historically low, and Crowe expects the 30-year fixed rate to stay below 5 percent through this year.
Housing Inventories are rising slightly, a statistic resulting from increased building activity by homebuilders, and more people are wanting to move, and thus are putting their homes on the market.
Well, by my count that is indeed 10 reasons why this year will be better than last. There are other factors, such as how a lack of existing homes for sale in many local markets are inspiring builders to ramp up production, and how NAHB's own Housing Market Index reached 57 in January for the first time since 2007 Any number more than 50 indicates that more builders view conditions as good than poor.
Even with rising concerns about how falling oil prices will affect oil-producing states, Crowe sees it as generally positive for homebuyers in those states as long those low oil prices don't last much past this year. Well, hope does spring eternal, as they say.