By Ashley Fletcher Frampton
aframpton@scbiznews.com
Published Jan. 26, 2011

The chief economist for the National Association of Home Builders told a local construction industry crowd on Tuesday that 2011 will be a slightly better year in their business.

“It will continue to be tough,” said David Crowe, speaking at a meeting of the Charleston Trident Home Builders Association. “I don’t think as tough as it has been. I think you’ve turned the corner.”

Crowe outlined a handful of indicators that point to more demand for new homes – but nothing like the industry saw mid-decade. He said that 2009 was the worst year for construction activity in the United States, based on records dating to the 1950s.

“You are all extremely fortunate,” Crowe told the builders in attendance. “You’re the survivors. This was an awful, awful downturn.”

For builders in most parts of the United States, 2010 was better than 2009, Crowe said. Across the nation, production of single-family homes rose 6%. But that was not the case in South Carolina, one of 17 states that saw fewer construction permits in 2010 than in the prior year.

With record-setting lows over the past two years, it won’t take much for the national building industry to improve going forward, Crowe said.

“It won’t be great; it’s not going to be a barn burner,” Crowe said about 2011, but there will be improvement.

Crowe highlighted the following data and trends that suggest improvement:

• A recent upturn in spending on motor vehicles and home furnishings, which suggests people are getting more comfortable spending money. Also, in years past, trends in spending on those two categories tracked with spending on home construction.
• A gap in the actual formation of new households compared with the number that demographic data show should have been formed. Crowe said there’s a gap of about 1 million to 2 million new households nationally — largely young people who have not moved out on their own — and those will help drive building at the forefront of the recovery. “It’s only so long that a 30-year-old can live in Mom’s basement,” he said.
• The recent slowdown in new home production. Crowe said that after five straight years of declining construction, the United States no longer has an oversupply of new homes when compared to population demographics. South Carolina, like most other states, has a deficit of home production, according to Crowe’s data. “What we are is way under where we should be given the population,” he said.
• During the height of the recession, Americans’ savings averaged 9% of their disposable income. That ratio has dropped back down to 5%, which is more of a normal level historically and suggests that consumers are feeling more confident about the economy, he said.
• The ratio of house price to income has dropped to more sustainable levels. Historically, that ratio has been around 3.2 nationally, but it had risen to 4.7 in 2006. Now the national price-to-income ratio is back down to 3.3, meaning homes are more affordable.

The situation in Charleston is not quite as good, Crowe said. The price-to-income ratio peaked slightly higher than the national average, at 4.8, in 2006, and it remains above 4 now. Crowe said one explanation could be that Charleston has seen more sales activity at the higher end of the market recently.

Crowe warned that not all indicators are looking up for 2011 and 2012. Financing for new construction is still difficult to obtain, and the national forecast for job growth is high enough to put a dent in the unemployment rate by 2012 — but not a big dent.

In past recessions, housing has driven the recovery, but that’s not going to happen this time, Crowe said.

“Housing’s not going to be the engine this time,” he said. “It’s going to be the caboose pulled along by job growth.”

Crowe said home foreclosures will continue in 2011, adding to the supply of homes with which builders must compete, although South Carolina will not see the high levels of foreclosures that states like Florida, Arizona, California and Nevada will see.

“I don’t make light of the foreclosure issue,” he said. “It’s one reason the recovery will be slow.”

Crowe said he expects new home construction to be at 2007 levels nationally by the end of 2012. Forecasts show that the Charleston market might take longer to recover, however, and Crowe said the reasons aren’t fully clear to him.

He said that the Charleston area has a good employment base and that it continues to attract large companies. The likely challenge is that home prices are still a bit high, leading consumers to be more careful when they consider buying.

Reach Ashley Fletcher Frampton at 843-849-3129.