If you want to know the real story behind the new housing market you go to where all new home construction begins, with the foundation, or at least the people who make it.
According to a recent report by the Portland Cement Association (PCA), tight lending standards and large home inventories are sending a clear signal to homebuilders to restrain building activity in 2011.
The PCA report says the U.S. will record 492,000 housing starts in 2011, a modest 3.4% gain compared to 2010 levels and this will increase significantly in 2012 with a 40% jump in housing start activity.
The report also said that In addition to tight lending standards and a high home inventory count, unstable housing prices are holding down the market and that foreclosures play an important and direct role in determining timing of a recovery.
Edward Sullivan, PCA chief economist, says that high inventory levels are expected to be characterized by a large portion of bank possessed properties. But banks are not in the realty business and will offer the homes below prevailing home market prices to remove the financial liabilities of possessed homes from their books. These homes, some nearly new, compete directly with new homes for the homebuyer – putting downward pressure on new home prices.
PCA believes that the foreclosure environment, adding to inventories and depressing prices, will largely offset the favorable conditions arising from any employment gains and affordability improvement expected in 2011. And even with expected improvement in national economic conditions, Sullivan predicts the any growth in the construction industry will vary considerably by region.
Sullivan says different regions of the country have very unique conditions for re-starting their housing industry. He believes that slower growth will be seen in the Great Lakes region where many homeowners participated in the exotic mortgage trend. The central U.S., from the Dakotas to Texas will lead the housing recovery. This region has benefited from an economic tailwind due to higher commodity prices, plus the region has the country's lowest home repossession rates and relatively strong labor markets.
He adds that the Southeast and Southwest housing markets will remain in a recession with new home construction trends once again approaching previous lows following the slight run-up during the home buyer tax credit expiration.
The PCA is based in Skokie, Illinois and represents cement companies in the United States and Canada. It conducts market development, engineering, research, education, and public affairs programs.
