| Multifamily a Bright Spot in a Housing Market Showing Little Luster |
The economic and
housing news of the past few weeks suggests a continuation of the flat
recovery.
The Federal Reserve’s Beige Book showed the nation’s economic
activity growing at only a “slow to moderate” pace. While manufacturing
activity expanded and consumer sales climbed modestly in most of the Fed’s bank
districts, residential real estate remained weak, weighed down mostly by sluggish
single-family housing construction.
In keeping with the moderate pace of employment growth seen
during much of this year, 120,000 jobs were added in November, again below the
level needed to accommodate an expanding labor force. More than half of
November’s decline in the unemployment rate to 8.6% was due to a decrease in
the labor participation rate, suggesting that the rate of unemployment will shift
upward again in the next few months as discouraged workers return to the job
market.
Despite efforts to pay down debt and build up savings, households
continued to see their balance sheets deteriorate in the third quarter, with
stock market declines wiping out $2.7 trillion of their financial assets. As a
result, overall household net worth declined 5%.
While consumers in recent months have indicated that they
view their current and future financial situations more favorably, the two main
consumer confidence indexes remain at low levels, in line with those seen at
the end of the recession.
Although home building — particularly single-family —
remains slow, the NAHB/First American Improving Market Index continued to
expand in December with the addition of 11 metro areas, raising the number of
improving markets to 40. Largely absent from the index so far are major
metropolitan markets that dominate the housing statistics.
Pointing to a bright spot in the broader U.S. housing
market, the Fed’s Beige Book noted improvements in multifamily construction in New
York, Philadelphia, Cleveland, Chicago and Minneapolis.
Meanwhile, reflecting consistent improvement in multifamily
housing starts this year, NAHB’s Multifamily Production Index for the third
quarter registered its fifth consecutive increase, reaching its highest reading
since the fourth quarter of 2005.
While market absorptions drifted down over the first half of
2011, vacancy rates have steadily declined this year, which is a hopeful sign
for future expansion in the multifamily market.
Credit conditions continue to restrain the housing recovery, with a recent
survey showing that a majority of NAHB members saw the shortage of acquisition,
development and construction credit (AD&C) worsen in the third quarter.
Builders are also struggling against a flawed appraisal process. In a
recent survey, one in three builders reported losing signed sales contracts in
the previous six months from appraisal values coming in below the contract
sales price.
Flawed appraisals are
also choking off AD&C credit, with falling appraised values for land and
subdivisions under development leading some financial institutions to stop
lending to developers and builders, to demand additional equity and even to
call in performing loans.
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