Economy Watch: When Will Homebuilding Pick Up the Pace?

By Dees Stribling, Contributing Editor

What’s this year in homebuilding going to look like? That concerns commercial real estate interests for two reasons. One is because of the profound impact of housing on local and regional economies. A robust housing market is a critical component in any local economy, and an important one for regional and national economies. People buying and selling and improving houses is more than just an exchange or improvement of a commodity: it’s a key part of building communities, which are places with long-term residents who are committed to the long-term well-being of those places.

Communities can be created in markets with a lot of rental apartments (Manhattan, for instance), but in most of the United States, for-sale housing anchors stable communities, with a mix of rental properties thrown in. Stable communities, on the whole, are good for other kinds of real estate. Developers want to develop in places with stable populations; lenders want to lend to develop in those places; and investors want to acquire properties there. Again, there are exceptions, but the rule is that housing is the ingredient that makes every other kind of property ownership a more certain and profitable venture in urban and suburban settings, regardless of property type.

Then there’s the more specific (and immediate) benefit of a healthy housing sector for commercial sectors such as retail, and indirectly industrial. People need stuff, and people will still buy stuff at conveniently located bricks-and-mortar shops, despite the allure of on-line purchases (with some exceptions: video and book stores are mostly out of luck these days). One sign of this is the relative health of community centers, especially those anchored by necessity-based retailers. The better the surrounding housing market, the better those kinds of properties do. Large malls also benefit from healthy housing, but it’s harder than it used to be to attract shoppers there.

Will the housing market improve this year? The answer is still maybe. Builder confidence in the market for newly built, single-family homes in February fell two points to 53 on the National Association of Home Builders/Wells Fargo Housing Market Index, which was released on Monday. The homebuilders have reasons for a very mild optimism (over 50 is optimism), but the truth of the matter is that the market for new homes still hasn’t really recovered from the recession. Since 2007, the annualized sales pace has hovered around 400,000 units—a slow level of activity compared with every decade since the 1960s.