As the number of defaults and foreclosures continues to head toward pre-crisis levels, what effect do you think that will have on the housing industry?
One, it’s a step toward normal. Millions of people lost their homes during the foreclosure crisis, and that really took a toll on homeowners, neighborhoods, and home equity. It’s not just people who lost their homes, but people who lost equity and now are underwater. We’re starting to see that rebound, and those numbers are starting to improve, which means folks who were underwater and couldn’t afford to sell are starting to be in a position to sell. That is good news for a housing market that needs inventory. You would think all those foreclosures hitting the market would help inventory, and it did at first. But it kept prices down too much. It depressed prices significantly. But what we saw in 2012 and 2013 is a lot of investors scooped up those foreclosures and turned them into rental housing. They either bought low, flipped it, and sold high, or they bought low and rented the properties out, since the rental market was so high. Both of those things mean there was less affordable inventory available for regular, traditional homebuyers. Now that demand has come back, there is not that supply that people can use to buy. I think the improvement in the foreclosure rate and the improvement in equity will help inventory in the coming year.
Were September’s surprising month-over-month declines in home sales an aberration or a trend? T
hat is what happens in the fall—you see a slowdown in the housing market. This is a cyclical trend. Overall, the housing market is still quite healthy. Year-over-year, compared with last September, the housing market is up 9 percent, so that’s strong. We think it’s going to be strong for the remainder of the year. What we do see weakening a bit is prices. Prices are starting to slow, and that’s also good news for buyers.
Do you expect GDP growth to pick up for the remainder of the year?
I do think the GDP will be a little bit stronger in the fourth quarter than it was in the third quarter. I think even though we expected it to slow down in the third quarter, it was still a bit lower (1.5 percent) than we expected. We had that strong labor report last week (271,000 jobs added), and I think that’s made everybody look at where the economy is right now. I do feel more confident about a stronger fourth quarter, but we’ve had these first quarters that have been a real drag in the last couple of years (0.6 percent in Q1 of 2015). I think it will be another lousy first quarter in 2016 to make up. So basically, we’re treading water. We have a bad first quarter, bad third quarter, and hopefully a rebound in the second and fourth. That doesn’t make for a sustained trend of growth. We just keep going backward and going forward a little bit. I don’t know how long this is going to last for the economy. I don’t think 2016 is going to be that liftoff year, though.
What needs to happen for us to see that sustained recovery?
Wage growth. We’re not seeing that. That’s been the spoiler in the party. If you saw wage growth, a lot of other good things would happen. One of them is that incomes would keep up with house prices. That’s my biggest concern—that prices, even though they’re slowing, they’re still so high that a number of first-time buyers just can’t afford to participate. NAR reported that the first-time buyer percentage is the lowest it’s been in a really long time. One other thing we’re not seeing is fiscal investments of any kind, not just in housing. Corporate investment has been far too low even at record low interest rates. Our whole fiscal policy has relied on the Fed, which should never happen. From the corporate and the fiscal side, we’re still missing investments, and on the labor side, we need more wage growth.
