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Finding Positives in Economic and Housing Conditions in 2012
Updated: Tuesday, February 28, 2012 - 11:03 AM
- While 2011 was clearly a challenging year, there is a lot to
be positive about looking ahead to 2012. Economically, while
buffeted by natural disasters and fiscal policy indecisiveness at
home and a European sovereign debt crisis abroad, the U.S. economy
was able to stave off economic stagnation in 2011 and is likely to
continue to do so in 2012.
Housing statistics and the duration of the housing downturn to date
indicate that 2012 may be the year we begin to turn the corner. In
the summer of 2011, economic concerns peaked as the economy
appeared to be on the brink of stagnation. Since the recession
officially ended, this was a nadir for the economy as consumer
confidence Data as of November 2011 plummeted, concern about a
double-dip recession resurfaced, and fiscal policy indecisiveness
reached its zenith. In the second half of the year, and heading
into 2012, most major economic statistics are exhibiting an
encouraging level of stability and positive, but weak, trends.
Though the pace of growth is slow, it is to be expected in an
economic recovery caused by a financial crisis.
Households are paying off their debts and at the same time
accessing credit more easily. Surprisingly, households also added
Home Equity Lines of Credit in the third quarter for the first time
since the financial crisis began, which is a positive sign of
access to liquidity that softens the impact of income shocks. A
quarterly survey by the New York Federal Reserve Bank1 shows that
total household debt continues to decline, but at a slowing pace.
During 2012, households will need to find their equilibrium between
household debt levels and consumption.
Consumer sentiment rebounded strongly in the latter part of 2011,
posting a six-month high in December. While still low compared to
pre-recession levels, this figure indicates an improving belief in
the strength of the economy in 2012.
The labor market seems to be ever so slowly clawing its way toward
recovery. In December, jobless claims were at their lowest level
since 2008. The unemployment rate is proving stubbornly persistent
and gains are often due to declines in the number of people
participating in the labor force. The consensus is that
unemployment will remain high in 2012 and that it will take a
number of years to reduce the level significantly. Nonetheless,
there has been consistent private sector job creation in the latter
half of 2011. We can expect the persistence of unemployment to be a
particularly contentious issue in the 2012 election year.
Housing is an industry with long business cycles. Typical regional
housing recessions have taken anywhere from three to five years to
find their bottom. The national housing recession has behaved
similarly in that it has bounced along a bottom for the past two
years. While prices are declining again to new lows, affordability
is rising dramatically due to a combination of house price
deflation along with rock-bottom mortgage interest rates. Adjusting
for inflation, this has been a "lost decade for housing as prices
are the same as at the beginning of the millennium.
The time is right in 2012 for prices to begin growing again and
housing affordability will put a floor under any further
significant declines in 2012. The spring and summer buying season
in 2012 will be watched very closely for positive signs of
demand.
Most housing statistics basically moved sideways in the latter part
of 2011. Builder sentiment is improving ever so slowly, but remains
at very low levels. Housing starts are also increasing, driven
mostly by multifamily starts. Even single-family housing starts
began increasing at the end of 2011. Both single family starts and
permits rose at an annualized pace of 15 percent over the six
months ending in November 2011. Existing home sales also started to
trend upward at the end of 2011, and were 12 percent higher in
November 2011 compared to January 2011.
Putting all of these statistics together indicates there is a very
long way to go and that the housing market is likely to sustain
these trends in 2012. While we cannot say with a high degree of
certainty what 2012 has in store for us, indications based on the
latter part of 2011 are that both the broad economy and the housing
market are moving toward positive growth in 2012. However, some
impediments do exist including slower global economic growth, a
recession in Europe, and fiscal and political uncertainty in the
U.S. Taking these facts and trends together, we are bullish on the
prospect of improving economic performance in 2012 from 2011.
