Spurred by the lowest mortgage interest rates since the 1960s, the housing sector will continue to bolster the economy into next year, according to members of the Northeast Florida Builders Association.
Though cautious, many NEFBA members contradict the much publicized “bubble theory” that some have predicted is about to burst.
You don’t have to wander far from home to feel the strength of the economy. Whether it is construction, new home sales, multifamily housing or remodeling, the industry has been a pillar.
Turning to the topic of home prices, a subject that has garnered intense media attention in recent months, including a cover story in Fortune magazine, most local builders and developers agree with economists in their assessment that there are no signs of a house-price bubble on the horizon.
“There’s a simple answer to the question ‘Is there a housing market bubble?’ The answer: no,” said Denise Wallace, president of the 1,600-member Northeast Florida Builders Association. “In fact, price gains could go higher if constraints on new construction continue intensify over the next decade.”
According to the House Price Index released by the Office of Federal Housing Enterprise Oversight, average U.S. home prices increased by 6.48 percent in the second quarter of 2002 on a year-over-year basis.
Jacksonville remains the most affordable large housing market in the state according to the National Association of Home Builders Housing Opportunity Index. The median price is $127,000 according to the latest report, which is for the first quarter of 2002.
“We are very fortunate in this market to have been able to keep housing affordable when comparing us with other parts of the state and even the country,” said Wallace. “Our fight to keep unnecessary fees and taxes that can keep people from affording a home has helped.”
This strong performance by housing continued a pattern of gradual deceleration from the cyclical peak of 9.17 percent in the first quarter of 2001, just before the onset of economic recession.
“The report belies recent media reports of alleged house price bubbles that are forming or about to burst,” said Wallace. “It indicates that home values have continued to improve at an historically healthy rate, but with some gradual and expected braking from the exceptionally strong pace at which they were gaining in the beginning of last year. There has been no dramatic slowdown, nor is there likely to be.
Also putting the “bubble” issue to rest was also the aim of chief economists from the nation’s two mortgage powerhouses. Freddie Mac’s Frank Nothaft and Fannie Mae’s David Berson both came to the same conclusion during a recent national summit on the role housing is playing in the economy.
“The key shock absorber in the economy is excellent mortgage rates that have averaged around 6 percent. We look for rates to gradually edge up to 6.5 percent by the end of next year, which is not that big a deal,” said longtime NEFBA board member Frazier Dughi of Atlantic States Bank.
Locally, single-family building permits in the Jacksonville MSA (Duval, Clay, Nassau and St. Johns Counties continue to be ahead of last year’s record pace.
Through September there were 7,814 permits issued compared to 7,080 for the same period last year.
Nationally, the single-family housing market is in an “incredible situation, with record new home sales (953,000) and starts (1.34 million) expected this year. And next year’s forecast is also very positive.
On the multifamily front, Ray Inman, chairman of the Northeast Florida Apartment Council (NEFAC) and a past NEFBA president, said that starts and permits are “holding up well” though he expressed concern over falling absorption rates, rising vacancies and some household migration to single-family homes.
The NAHB is projecting overall housing starts to rise 5.3 percent this year to 1.69 million units and then decline 3.4 percent to 1.63 million units in 2003.
“Housing has been one of the stellar areas of the economy,” said Arnold Tritt, executive vice president of the Northeast Florida Builders Association. “There are still a few bumps in the road, industrial production has been down for two consecutive months, and auto and retail sales are slowing. One of the best signals that the economy is improving is that we are continuing to see solid productivity gains.”
Patent grants that show productivity and research and development are at an all-time high.
Two new studies have begun to clear the fog of uncertainty from the remodeling sector that accounts for almost 40 percent of all housing-related expenditures for professional remodelers. Based on both surveys, the outlook is reassuring.
“Equity conversion and mortgage refinancing have certainly made remodeling an attractive prospect,” said Tim Whitehurst, chairman of the NEFBA Remodelors Council. “Top concerns at this time include availability of skilled labor, labor costs and employee retention. But overall we continue to be optimistic. The remodeling market has performed well and we think it will continue upward expansion into the next several years.”
And while over half of home improvements are by “do-it-yourselfers” on their own homes, that still leaves half of a very big marketplace to professionals. Of the total $214 billion spent on remodeling last year, 77 percent (more than $131 billion) was on home owner improvements, with the remainder split among rental maintenance and repairs ($22.9 billion), rental improvements ($25.3 billion) and home owner financed maintenance and repairs ($34.3 billion).
Looking at the biggest chunk of the remodeling market – expenditures by home owners – most of the growth is occurring at the highest end, specifically projects amounting to more than $20,000. Kitchens and bathrooms are among the most popular individual projects, which explains why about 60 percent of remodelers focus on kitchens, bathrooms and room additions.
More proof that housing is a solid investment came in September when sales of new homes hit a record seasonally adjusted annual rate of 1.021 million units, up slightly from what had already been a record-breaking pace in August.
“The housing market continues to fire on all cylinders as exceptionally low interest rates and solid home-price appreciation drive buyer demand,” said Wallace. “New-home sales for all of 2002 are now almost certain to surpass last year’s all-time annual record of 908,000.”
The single-family housing market continues to be a bright spot in the midst of a rather dismal economy. Strong sales and production of homes have been providing good support to the economy, and realization of large capital gains by many homeowners has been bolstering residential remodeling as well as other forms of consumer spending.