NEW YORK CITY-The recovery of the single-family housing market is showing a “palatable sea change” from last year as employment figures and consumer confidence continues to inch up, according to Mark Zandi, chief economist at Moody’s Analytics, who spoke at IPD’s US Real Estate Investment Forum at the Millennium Broadway Hotel in Midtown on Tuesday morning.
"In my view, we have come a long way from righting the wrongs that got us into this mess," Zandi said. "The reason for the financial panic and the great recession was that we made millions in bad loans, bad in the sense that millions of loans did not get repaid,” noting that total realized losses on first mortgage loans since 2007 is nearly $500 billion – and counting.
But Zandi said the real estate industry has “come a long way” to work through problem loans, and as a result, pent-up demand for single-family housing will be driven by increased hiring across the country.
“In my mind, it is no longer a question of whether American companies can invest and hire more,” he said. “It is entirely a question of willingness and a question of confidence. I sense we are coming to a point in the business cycle where confidence has improved to a degree.”
In terms of economic growth, Zandi predicted that GDP will go up to 2.5% in 2012 and will hit 3% in 2013, a sign that job growth and greater absorption of office space will return to the US.
“The job market feels really good,” he said. “Over the last several months we have been creating about 200,000 jobs on average per month, and it has been broad-based across industries and areas of the country,” noting that even hard pressed areas of the housing bust like Florida, Arizona, Nevada and California are experiencing solid job growth, and the breadth of the job gains are “impressive.”
Predicting 2.5 million new jobs this year and three million in 2013, Zandi said the unemployment rate has the potential to dip below 8% by year’s end, and can near 7% by 2015.
“I don’t think we will get back to full employment – that’s an unemployment rate that’s 5.5% or 6% -- until the end of 2015 or the end of 2016,” he said. “Even in my optimistic world view, it’s going to take a number of years to claw our way back.”
Zandi noted that impediments such as high oil prices, the European debt crisis and foreclosures could affect the recovery. As of February, he said that 3.6 million first mortgage loans that were in foreclosure or 90 days delinquent, but the spring selling season is starting on a positive note.
“I suspect as we get toward the end of 2012 and toward 2013, hopefully the process begins to re-engage in the wake of the settlement of the mortgage servicers and the state attorney generals that the number of properties that go through a distressed sale will begin to re-accelerate,” he said, acknowledging that headwinds still exist.
“It’s hard to get entirely enthusiastic about the economy when house prices are weak,” he adds. “But the thing that makes me nervous is the possibility of getting back into that dark vicious cycle we were in at the end of 2009."
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