The Spring selling season. And Dan Oppenheim, a home-building analyst with Credit Suisse, predicts we’ll not only see one this year, but it will likely be strong. Builders are shifting from survival to rebuilding profitability - “a welcome relief after the past several years” - but five threats remain:
1. Tax credit expires. The government is offering up to $8,000 to entice buyers, which will create urgency before the April 30 expiration. But that means orders will likely be condensed in the early spring, with estimated order growth of 21% in the first quarter and 5% in the second. “Pulled-forward demand will likely lead to subsequent slowing starting in May,” Mr. Oppenheim writes in a client note. The concern is what happens after that. (That’s why builders are working as quickly as possible for deals now.)
2. Mortgage rates rise. Mortgage rates have been at low levels not seen in years, making home ownership more affordable for many priced out during the boom. But most analysts expect mortgage rates to rise later this spring, when the Federal Reserve stops buying mortgage-backed securities.
3. Foreclosures continue. Despite the government’s best efforts, consumers continue losing their homes and there’s no end in sight. “The continued supply of foreclosures will mute any improvement in demand,” Mr. Oppenheim writes.
4. FHA tightens lending. Higher insurance premiums and decreased seller-provided closing costs will likely cut new home demand between 5% and 10%.
5. Jobs. There’s risk from a slow rebound in employment. Consumers without jobs don’t buy houses. Period.