Mixed messages inside the housing recovery
New York City — The people who pay extra close attention to the housing market assembled in New York City to look at the big picture and dissect a problematic question: Why aren’t things getting better faster?
During the fourth running of the Building and Infrastructure Conference presented by Lincoln International and L.E.K. Consulting, it was clear that there was no single answer. Job growth and mortgage rates are the usual indicators, but add to the mix oil fracking and student debt.
While previous conferences had hailed a recovery, L.E.K.’s managing director Chris Kenney kicked off the conference with the comment: “Today, things are a little less certain.”
In the first quarter, economists studying the housing and home-building markets pointed to weather as the culprit. In the second quarter, they pointed to the difficulties faced by first-time home buyers. The task at hand in New York was to take a harder look.
First up was Lisa Marquis Jackson, senior VP of John Burns Real Estate Consulting. In her state of the housing industry update, she said we’re in a slow growth environment. But every environment is different.
For instance, tech booms in the California’s Bay area and Seattle are lifting housing, while oil and energy industries are lifting the entire state of Texas.
Southern Florida also shows strength, she said.
On the other hand, the Northeast and Midwest were late to the economic recovery and not attractive to investors, she said. Southern California is hampered by sticker shock. The markets of Denver and Washington, D.C., are interesting, she said, in that they were insulated from the bust and boom as seen in other major metro markets.
An often overlooked factor in the housing industry is student debt. JBRE analysts studying student loan debt in people aged 20 to 39 figure that about 414,000 transactions per year are not happening because of student debt. That equates to an 8% loss in sales volume. “[This is] a significant impact to the industry,” she said.
“The good news is the people carrying the debt should be higher-income earners over time, and that will pay itself forward,” she said.
The JBRE starts forecast for 2015 stands at 1.12 million, she said, below the consensus of 1.22 million. She showed a chart indicating construction starts are about 60% of the way back to normal (“normal” defined as 1.5 million).
She concluded that the recovery is under way, and it varies by market.
A limiting factor on housing is the ability of builders to find labor. One of her charts carried the title: “Why frame walls when you can frack wells?” The energy industry is competing and winning for crews, she said.
Perhaps her most optimistic chart was one that showed the aging housing stock (see chart).
“The lion’s share of housing stock is in need of repair. And the median age of a home is 39 years,” she said.