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Robert A. Simons Ph.D.Professor
Levin College of Urban AffairsCleveland State University
With help from Arthur Schmidt
2013-2014 Housing Forecast
Presented to Cleveland Homebuilders Association (HBA)November 8, 2012
CLEVELAND METRO IN THE STATE, NATION AND WORLD
• We are nested in the world economy
• We have 11 fortune 500 companies in NE Ohio
• Our manufacturing is down
• Our medical is up
• Our housing prices are cheap
• Our bubbles, if we have them, are small
• Our local government is fractionalized and our local tax burden is high
• We tend to lead nation into recession and lag them out
• We now have shale-gas fracking as an engine, just emerging
US: LOOKING BACK TO 1999 AND BEYOND Longer view: since @1970; recessions in 1974 (oil
shock) 1979-1981 (more oil and stagflation ) 1982 (double dip); 1986-1989 (real estate only – tax code driven); 1991 (economic exhaustion) and 2001 (9-11)
Expansion from 2002 until 2007-2008 recession (Financial rules and liquidity driven, FNMA, FMC, AIG)
7 recessions in 42 years=Average of a recession every 6 years
Since 1999=average cycle: 2 recessions in 12 years
Housing construction leads us out of a recession: NOT!
US Employment Mix: since 1999: MFG.-32%; CONST.-12%; SERV (except education) +4%; LEISURE +12%; GOV’T +9%, HEALTH CARE +30%
INTERNATIONAL THINGS TO WATCH
•ASIA / CHINA GROWTH
•EUROPE MELTDOWN
•MIDDLE EAST TURMOIL
•US SUSTAINED RECOVERY / FISCAL CLIFF
WSJ OCTOBER 2012
Greek Debt
is > 8% over
German rate
EUROPE - MONETARY UNION?
•EU IS AT A CRITICAL POINT
•NATIONAL FISCAL AND BANKING SECTORS NEED TO BE MERGED
•GERMANY WOULD PAY THE BAIL-OUT BILL FOR WEAKER SISTERS (Portugal, Ireland, Spain, Italy)
•EURO UNLIKELY TO COLLAPSE (FEAR), BUT STRONG ENFORCEMENT NEEDED
•FUTURE OF UNION STILL NOT CLEAR, BUT RECESSION IS
MIDDLE EAST• IRAN AND NUCLEAR SANCTIONS
•SYRIA CIVIL WAR CONTINUES
•PALESTINIAN INTERNAL DISCORD
•EGYPT ARAB LEADER –PROGRESS?
• ISRAELI-PALESTINIAN PEACE EFFORT
•LEBANON –TINDERBOX
•TURKEY AND THE KURDS, ARMENIANS
• IRAQ, AFGHANISTAN WINDING DOWN
•EFFECT ON INTERNATIONAL RELATIONS AND ENERGY PRICES
US ISSUES
•4 MORE YEARS OF DEMOCRATIC PRESIDENT, AT LEAST 2 MORE YEARS OF SPLIT CONGRESS
•MONETARY AND FISCAL POLICY
•ECONOMIC GROWTH
•CONSTRUCTION
FEDERAL FUNDS TARGET RATE
Fed target rates remain at all time lows
For how long? ANOTHER FEW YEARS
INTEREST RATES ARE SO LOW, ELDERLY PEOPLE CAN’T EASILY LIVE OFF THEIR INCOME
THE ECONOMIST 11/3/12
2.2% GROWTH IS THE NEW NORMAL
BUT THE STOCK MARKET
DROPPED 2+% !!
Demand side
•Borrowers are CLAWING THEIR WAY BACK from underwater
•Still have artificial backlog of foreclosed property
Source: Zillow
2012 –CLOSER TO
23-25%
House prices are firming
YEAR ON YEAR % CHANGE
And construction is starting to pick up a
bit
In Ohio-FRACKING
(shale gas recovery)
•Fracking will affect NE Ohio
•2 shale layers, Marcellus and Utica
•Ohio unemployment rate 7%, <US
•Shale will be a substantial Driver of growth
But….•Banks are slow to pick up
•Fannie and Freddie are still in limbo
•And strengthening house sales will slow rental growth
Simons 2013-2014 forecast
US GDP positive, relatively low @2.2% AND STEADY. No double dip
• Consumer confidence mixed at best, stocks recovered @DJIA= 13,000. Firms doing better.
• Little risk taking. STILL Lots of cash on sidelines. Short term rates <1%. More savings healthy in long run. Reasonable consumption also. Older folks need to work
• Bouncing along the bottom, Jobless recovery, BUT UNEMPLOYMENT RATE <8%.
• Presidential election year 2012 ---- 4 more years of OBAMA. Fiscal cliff gridlock?
• Housing prices and re-sales stabilized at lower levels, inching up. Continued residential foreclosures will hold prices down and compete with existing inventory. Residential construction down >70%, but glimmers of hope
Commercial refinancing issues have not been resolved. Retail sector problematic, but improving slightly. Loan originations, servicing, new commercial construction lending will be flat, at very low levels down >90%. Hang on
Some housing niches still active. LIHTC, new location thrill/upper end. MF/rental unit starts inching up, New micro-homes?
New construction: SOME ACTIVITY, STILL WON’T BE ROBUST FOR next few years
Robert A. Simons Ph.D.Professor
Levin College of Urban AffairsCleveland State University
