We've had very large tax cuts and very aggressive mortgage borrowing, he said. We now need to see job growth to keep the economy moving ahead. "Businesses need to respond to their better profitability by creating jobs." If there is no job creation, he warned, there is no policy response.
He noted that there has been "an astounding housing market" despite the loss of jobs across the country. GDP growth would be substantially lower, he said, without housing's growth.
Zandi said that housing has been strongest in the Northeast corridor, south Florida, and in California. In the first half of 2004, areas that will rebound are those that depend on computer hardware, travel, and energy distribution. These include metropolitan areas in the South, and more cities in the East and Southeast. In the second half of 2004, he said, economic improvement will spread to those cities that depend on durable goods.
Long-term interest rates will rise next year, predicted Zandi, and it will probably be a sharp rise. "The housing market will start to weaken then," he stated.
There has been a growing gap between home building and jobs, he said. Usually they move together. We've been seeing increased demand for housing now, but that will weaken demand later as the economy improves and jobs come back, he commented.
As the broader economy is revitalized, Zandi said, weaker housing conditions will be seen in those areas that have been the strongest - the Northeast, south Florida, and California.
Stan Duobinis, a consultant with Crystal Ball Economics, further elaborated on the regional housing market. He noted that only 18 states have seen job growth during the past two years. Only four of those had growth above 1 percent.
The states that have seen the strongest employment growth are Alaska, Florida, Georgia, Nevada, and New Mexico. The Midwest has seen the greatest declines in employment, along with Alabama, Mississippi, Oregon, and South Carolina.
"Job growth makes an area attractive," said Duobinis. If net migration to that area is positive, it strengthens housing demand since it brings in new households. "Turnover by itself may cause a housing market to be active, even if the net change is small."
Duobinis showed that net migration has been greatest in the Southeast, Arizona, Nevada, Oregon, and Texas. Looking at migration per population, Midwest people don't move much, he said.
Much of the growth that has been seen to date in housing starts has been in single-family starts, he said. For 2003-2004, he expects no more than eight states to show positive growth in single-family starts. They are Alaska, California, Connecticut, Massachusetts, New Jersey, North Dakota, Rhode Island, and South Carolina. The largest positive gain will be 4.4 percent. "Many states will be lucky to break even," he remarked.
Multifamily starts will do better, with 10 states showing gains from 5.6 to 11.7 percent. They include Arkansas, Connecticut, Maine, Massachusetts, New Jersey, Oklahoma, Pennsylvania, Rhode Island, South Carolina, and Vermont.
Publication date: 11/24/2003
