Thursday, January 17, 2013

Lawler: 2012 "Surprises" in Housing and 2013 Forecast

by Bill McBride on 1/17/2013 05:20:00 PM

CR note: Economist Tom Lawler's forecasts for 2012 were very close (see: Lawler: Housing Forecast for 2012). Here is what Tom wrote on January 16, 2012:

“(T)here are pretty decent reasons to believe that 2012 will be a turnaround year for the housing sector, with (1) construction activity increasing; (2) overall vacancy rates falling, with especially low rental vacancy rates; (3) rents continuing to increase, and outpacing overall inflation; and (4) home prices hitting a bottom early in the year that is not much lower than the end of last year (2011).”
The following is from Tom Lawler: 2012 "Surprises" in Housing and 2013 Forecast

Here are a few observations on last year’s housing market, including some of the bigger “surprises.”

1. Home Prices: While it seemed reasonably to expect a modest YOY gain in home prices (as measured by repeat-transactions HPIs), it appears as if the “actual” gain will come in well above the most optimistic of forecasters. “Reasons” included but are not limited to (1) much larger than expected declines in inventories, (2) substantial increases in investor purchases of SF homes, and (3) continued actions by monetary policymakers to engage in fiscal policy by buying MBS to push mortgage rates lower and thus encourage credit flows into a specific sector of the economy (housing).

2. Inventories: While a continued reduction in homes listed for sale seemed exceedingly likely in 2012, the magnitude of the drop clearly exceeded “consensus.” “Reasons” included but were not limited to (1) strong investor buying of SF homes and turning them into rental properties; and 2) a slower than consensus pace of completed foreclosures which, combined with strong demand for REO properties, resulted in a sharp drop in the inventory of REO for sale;

3. Investor Buying of SF Homes as Rental Properties: While investor buying of SF homes as rental properties began increasing significantly several years ago, the entrance of and/or increased activity by “big-money” institutional investors resulted in a substantial increase in such investor buying. Such activity was barely contemplated by “consensus” forecasters.

3. Completed Foreclosures: In 2011 the “robo-signing” scandal led to a significant slowdown in completed foreclosures in the latter part of that year. Many analysts had expected that once the infamous mortgage “settlement” was signed (in March 2012) that banks/servicers would shortly thereafter accelerate completed foreclosures. That didn’t happen; instead servicers spent much of 2012 focusing on compliance (including ending dual tracking); there was a resurgence in modification activity; and foreclosure timelines continued to increase (and in several states legislation was passed that effectively lengthened timelines in those states). As a result, 2012 was another low “foreclosure resolution” year.

4: Rental Vacancy Rates and Rents: While the decline in rental vacancy rates and increase in rents last year was not as much of a surprise as the drop in homes listed for sale and the increase in home prices, the RVR fell by more, and rents increased by more, than “consensus.”

5. Homeownership Rates: While there are no good, timely data on the US homeownership rate (the widely tracked HVS overstates the homeownership rate), available data combined with analysis of the systematic undercount of renters in CPS-based surveys, suggests that the US homeownership rate declined again in 2012 – probably to around 63.7%, compared to the 65.2% on April 1, 2010 suggested by the decennial Census results. (HVS showed a first-half 2010 homeownership rate of 67.0%). Reasons included a shift by householders on the benefits vs. costs of homeownership; what appears to have been a rebound in household growth of “younger” adults; tight mortgage underwriting; and an increase in householders with “troubled” credit.

Looking into 2013, reduced inventory levels, firmer home prices and rental rates, and a likely acceleration in household growth suggest that housing production should increase again in 2013. Moreover, unlike in 2010 and 2011 (when inventories remained elevated), such an increase would be a welcome result.

My “best guess” for housing production this year is as follows:

US Housing Starts (000's)Mfg. Housing
 TotalSingle FamilyMultifamily (2+)Shipments
2012780535.5244.555
2013(F)96567529060
 US Housing Completions (000's)Placements
2012651.4484.6166.850
2013(F)84060523557


On the home-price front, I’m still trying to get a “handle” on 2012’s gain. In the December 2011 Zillow survey my Q4/Q4 forecast for the % increase in the SPCS “national” HPI was 2.5% for 2012 and 6.0% for 2013. But the “actual” for 2012 is likely to exceed 6%. – though the Q4/11 SPCS HPI appears to have been “hit” with some depressed “distressed” sales prices. Right now my best guess is for a Q4/Q4 YOY increase of about 3.0%.

I’ll have more details, and some thoughts on the risks to the forecast (NOT focusing on “macro” risks), either tomorrow or next week.

CR Note: This was from housing economist Tom Lawler. Here is a link to several other 2013 housing forecasts.

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