The volatile U.S. housing market finally is going to experience a little growth, predicts Chapman University’s 34th annual economic forecast. Nationally, housing starts crashed from 1.8 million in 2006, the height of the real estate boom, to under 600,000 starts annually in 2009-11. The forecast expects a rise to 602,000 units in 2012, a 3.2 percent increase from the 583,000 units of 2011.
The good news is that, although “housing starts will continue at depressed levels, the trend is positive,” said Jim Doti, an economist and Chapman president.
“The real problems in housing won’t be solved by lower interest rates,” he said of the possibility that the Federal Reserve Board could cut interest rates further. The reason is that interest rates already are at historically low levels and can’t go much lower.
The positive side is that “housing prices have dropped, and homes are very affordable,” Doti said. “This is a great buying opportunity. People have the wherewithal to buy homes, but are holding off” because of fears the economy could plunge again into a recession. But those who take the plunge are getting some good deals.
The home vacancy rate, historically about 2 percent, also has improved slightly. The level zoomed upward from 1.9 percent in 2005 to 2.8 percent in 2008, then leveled off to 2.4 percent in 2011, where it should remain in 2012, Doti said.
The housing doldrums are affecting the national economy. Doti quoted Chapman’s Nobel economics laureate, Vern Smith, who said, “We can’t get a real strong recovery until we get a strong uptick in housing.”
U.S. housing prices, which dropped about 4 percent in 2011, will show a slight increase in the second half of 2012, rising at about a 1 percent annual rate.
Esmael Adibi, the director of Chapman’s A. Gary Anderson Center for Economic Research, which assembled the forecast, said this mainly will benefit “first-time homebuyers with good credit.” He also said that sluggish home prices are retarding the economic recovery. Yet home prices won’t rebound until more jobs are created.
For us, the message is clear: Jobs creation should be the No. 1 concern of government. And to do that, taxes and regulations need to be cut, not increased. Uncertainty remains until Americans choose a president in November 2012.
In sum, it looks like 2012 will be a holding year, for housing and the rest of the economy, as we await the will of the voters.