Barclays: Housing market to remain resilient
Falling inventories, continued pick up in housing demand, low mortgage rates and improved affordability are key factors that will continue to underpin home prices, according to Barclays 2013 outlook report on housing.
Housing starts for the first quarter are expected to be 944,000 and jump to 973,000 by the second quarter. Inventory supply is also projected to stabilize at current levels and even move modestly higher through the year.
If the fiscal cliff were to hit, the housing industry would likely slow, but not enough to a point where it would become particularly vulnerable to a sharp contraction.
Residential investment spending is a sector that would spring back quickly if the ‘cliff’ occurred because upward momentum in the spending remains strong, Barclays said.
Residential spending grew 13.8% year-over year in the third quarter, however recent data indicates that there’s no further acceleration. Particularly, housing starts increased 41.9% year-over-year in October, with the November homebuilders index showing strong gains in the upcoming months.
Click on the graph to view stronger starts.
"New home inventories have fallen to their lowest levels ever, as homebuilders have held housing starts below even the depressed pace of new home sales in recent years. Now that new and existing home sales are on sustained upward trends, new home inventories have fallen enough that builders need to raise housing starts to prevent inventories from falling further," the report said.
The S&P/Case-Shiller Home Price Index rose 0.39% month-over-month in September, marking the eighth consecutive monthly increase.
The indices outperformed expectations of home price increases in 2012 as a result of shadow inventory.
Distressed home pricing has rebounded in line with, if not stronger than, non-distressed pricing.
Click on the graph to view the housing forecasts in 2013.
Real estate wealth, which has dragged on consumer spending since 2007, is expected to begin to boost consumer spending sometime in 2013.
"This would mark an important turning point for household balance sheets, where net wealth effects from falling financial prices and the collapse of the housing market have been significant impediments to the strength of consumer spending and, in turn, the pace of the broader recovery," Barclays said.
Housing policies will prove to be an additional risk for housing.
The Federal Housing Administration projected $16.3 billion shortfall in reserves in its actuarial review. FHA-backed loans represent about 20% to 30% of new homebuyers.
To avoid any long-term solvency, the agency will “likely have to raise additional revenue and improve the quality of its portfolio by increasing insurance premiums, raising the down payment requirement and lowering conforming loan limits.”