More than five years after the crash, homebuilding is stuck at half its normal level. That's a big drag on the economy. And things aren't looking much better: A report out Thursday shows homebuilder confidence is at its lowest level in a year.
This severe slump in single-family home construction has been going on across the country. We haven't seen anything close to this kind of a long-term construction slump since World War II.
"This is a completely unprecedented collapse," says Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics. "What we learned was that if you pump enough leverage into a housing market and then take it out very quickly, you can see collapses the likes of which you've never even imagined," he says.
Homebuilding remains a kind of sleeping giant. If it wakes up, it could create a lot of good-paying construction jobs and manufacturing jobs at companies making everything from windows to dishwashers to lawn mowers. When housing really recovers it can offer a real boost to the economy.
And last spring, it seemed like that boost was coming. "Things seemed to be coming back, and we were seeing a big pickup in house prices, and construction was picking up as well. Everyone got very excited," Shepherdson says.
But then mortgage rates went up. "And at that point things came very quickly to a jibbering halt," Shepherdson says.
Housing is now caught in a serious pickle, he adds. The Federal Reserve has kept interest rates low for a long time. But as the economy improves, rates will keep rising — as they did last summer when the central bank signaled it was going to start pulling back on some of its stimulus efforts.
Interest rates always rise as an economic recovery gains steam and the Fed shifts its policy to be less stimulative. But if homebuyers keep disappearing whenever rates go up, "we're sort of stuck," Shepherdson says. And he says that's what the survey evidence seems to be suggesting — that builders are not seeing any sort of bounce after the weather turned warmer.
Shepherdson says he was hoping that the latest optimism index from the National Association of Home Builders would have come in stronger, "and it didn't happen."
Shepherdson predicts that in this recovery housing will continue to disappoint, and activity will remain very sluggish.
Still, other analysts are more optimistic. Economist William Wheaton at MIT says the housing market will start to recover more strongly as household formation picks up again. For example, for years now, younger Americans have been living with family or roommates instead of striking out on their own. And at some point that has to change, many economists say.
Eric Belsky, an economist at the Harvard Joint Center for Housing Studies, sees pent-up demand in housing that has yet to be released. Credit remains very tight, making it hard for many average Americans to qualify to purchase a home, Belsky says.
The homebuilders survey shows that, while builders are currently pessimistic, more are saying they are optimistic that sales will pick up over the next six months.
De Desharnais, a homebuilder in New Hampshire, says housing may finally be turning a corner. Desharnais, the vice president of operations for Ashwood Development, says "quite honestly we've seen more traffic on our sites this spring than we've seen in ... seven years probably." So she says she's hopeful.
Over the past 30 years, her firm has built 3,000 houses. "We come in; we buy the forest, so to speak; we put in the roads, and then we start building the houses. So we do it from A to Z," she says. But like the rest of the country, Desharnais says sales have been off about 50 percent since the crash.
On Friday, the Commerce Department is set to release its latest numbers on how many new homes are getting built.
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There's something missing from the recovery in the housing market, and that is new houses. Even now, five years after the crash, homebuilding is stuck at half its normal level. That's a big drag on the economy. A report out today shows homebuilder confidence is at its lowest level in a year.
NPR's Chris Arnold reports.
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CHRIS ARNOLD, BYLINE: Homebuilder De Desharnais is checking on the insulation crew at a new house near Manchester, New Hampshire. The electricity is not hooked up yet so there's a portable generator running in the driveway.
DE DESHARNAIS: Until we start sheet rocking, most of the guys expect to work with a generator. They don't expect to have power here.
ARNOLD: The stairs to get up to the front door are still on the to-do list too.
DESHARNAIS: We simply are waiting on some stairs.
ARNOLD: I think I can get up there. Alright.
Desharnais is Vice President of Operations for Ashwood Development, which builds subdivisions like this one in New Hampshire. Over the past 30 years they've built 3,000 houses but not too many since the housing crash. Back before the market got overheated in a normal year they'd be selling...
DESHARNAIS: We were probably closing like 60 or 70. And we'd come in, we buy the, forest so to speak. We put in the roads and then we start building the houses. So we do it from, you know, A to Z. So now we are down to probably 30 a year.
ARNOLD: That's about half of normal. And we've been seeing that same slump around the whole country for more than five years now. We haven't seen anything close to that kind of a long-term construction crash since WWII.
IAN SHEPHERDSON: This is a completely unprecedented collapse.
ARNOLD: Ian Shepherdson is chief U.S. economist at Pantheon Macroeconomics.
SHEPHERDSON: What we learned was that if you pump enough leverage into a housing market, and then take it out very quickly, you can see collapses the likes of which you never even imagined. And that's exactly what happened.
ARNOLD: So homebuilding remains a kind of sleeping giant. If it wakes up, it could create a lot of good paying constructions jobs and manufacturing jobs for people making windows and dishwashers and lawn-mowers. It can offer a real boost. And last spring it seemed like that boost was coming.
SHEPHERDSON: Things seemed to be coming back and we were seeing a big pickup in house prices and construction was picking up, as well. Everyone got very excited but then mortgage rates went up. And at that point things came fairly quickly to a jibbering halt. And they haven't got any better since then.
ARNOLD: Shepherdson thinks housing is now caught in a serious pickle. The Federal Reserve has kept interest rates low for a long time. But as the economy improves rates are going to keep rising, that's just what tends to happen, and if home-buyers disappear when rates go up...
SHEPHERDSON: We're sort of stuck and that's what the survey evidence seems to be suggesting, that the home-builders are not seeing any sort of bounce that everyone was expecting after the winter. After the weather got better, we were looking for the homebuilder survey to come in a bit stronger today and it didn't happen.
ARNOLD: Shepherdson thinks in this recovery housing is going to continue to disappoint and remain very sluggish.
Still other economists are more optimistic. And that same survey, from the National Association of Homebuilders, reported more optimism that sales will pick up over the next six months.
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DESHARNAIS: Hey, guys. We're insulating this one, these guys will probably, I'm guessing from the looks of the wrap up, later today or tomorrow morning, I'm guessing.
ARNOLD: In New Hampshire, De Desharnais is feeling optimistic, too.
DESHARNAIS: The spring, quite honestly, we've seen more traffic on our sites this spring than we've seen in years, seven years probably. I do see a lot more sold signs popping up and stuff. So yeah, we are hopeful.
ARNOLD: Tomorrow, the Commerce Department will release its latest numbers on how many new homes are actually getting built.
Chris Arnold, NPR News.
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