Window and Door — August 2012
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Industry Watch
Rich Walker, American Architectural Manufacturers Association

Waiting for Recovery. . .But When Will It Show

As in Samuel Beckett's famous two-act play, "Waiting for Godot," a lot of us must feel much like we're waiting vainly for the arrival of some mysterious character to bring back happier days. True to the plot, while cruising through the statistics can dig up some positive areas to confirm a reasonable optimism, the overall economic picture remains largely inscrutable:

Job creation remains anemic–Fueling an uptick in unemployment to 8.2 percent, early June's Bureau of Labor Statistics jobs report showed only a 69,000 increase in jobs for May, versus the expected 150,000 – still well short of the 200,000 needed to classify the recovery as self-sustaining.

Growth slows–The Bureau of Economic Analysis reports that the gross domestic product grew by only 1.9 percent during the first quarter, down from 3.0 percent in the fourth quarter of 2011.

Consumers grow more wary–The Conference Board's Consumer Confidence Index fell further in May to 64.9, down from April's 68.7.

Existing home sales falter–Although logging three consecutive months of increases and registering 14.4 percent higher than it was a year ago, the National Association of Realtors pending home sales index fell 5.5 percent in April.

Mortgage defaults and foreclosures creep up–Delinquent loans are running nearly 20 percent off the late 2009 peak. However, RealtyTrac Inc. announced that default or scheduled-home-auction notices increased by 12 percent in May, a 16 percent jump versus May of last year.

Home prices remain weak–The Case-Shiller house price index slid by 2 percent in the first quarter of 2012 from the fourth quarter of 2011, which is 1.9 percent below the first quarter of last year. The longer term picture is somewhat better, with the average unsold home inventory down by nearly two-thirds from 2009. The Federal Housing Finance agency index shows house prices up 1.8 percent in March relative to February and up 2.7 percent from March 2011.

Lending is still slow–A sizable gap continues to exist between home building demand and available credit for home buyers. And, NAHB's survey on Acquisition Development & Construction (AD&C) financing finally shows conditions stabilizing somewhat, although at a very low level of credit availability (since early 2007, AD&C lending is down 79 percent).

Then, on that famous other hand:

Residential construction increases–Owing partially to record affordability, and contrary to the tone of recent economic news, single-family starts are recovering (albeit from a low base: the dollar value of single-family permitted construction has fallen 56 percent since early 2007). The Census Bureau reported a strong 2.8 percent jump in spending on new projects during April 2012, continuing a nine-month trend.

The multifamily bright spot–As tight credit and shaky employment prospects drive potential home buyers to apartments versus builders or real estate agents, the NAHB's Multifamily Vacancy Index dropped to a level of 31, the lowest since the creation of the index in 2003. As a result, multi-family spending was again up strongly at 4.1 percent in April. The NAHB's Multifamily Production Index recorded its highest reading since the third quarter of 2005, its seventh consecutive quarter of growth.

The remodeling bright spot–NAHB reports home improvement spending as volatile, gaining 3.7 percent in April after an estimated 2.9 percent decline during March. However, Harvard's Joint Center for Housing Studies Leading Indicator of Remodeling Activity projected in early April that annual spending will end 2012 up 5.9 percent.

THE WILD CARD

This year, the "wild card" is what some pundits are calling "Taxmaggedon." At the end of 2012, a number of tax and spending policies are scheduled to change. If Congress does not act to avoid what Federal Reserve Chairman Ben Bernanke calls this "fiscal cliff," the Congressional Budget Office forecast for GDP growth in 2013 falls from 4.4 percent to 0.5 percent. This would clearly harm the already weakened housing market. Obviously, while most forecasters expect the "taxmaggedon" financial crisis to be averted, a lot rides on the results of the 2012 elections. And, it certainly seems as there is no end to the negative financial feedback from the Eurozone.

So, as in Beckett's play, we wait for our own version of "Godot" – an agonizingly slow-to-arrive set of market conditions. At least we aren't just waiting, but preparing. And that is a good thing.

Rich Walker is president and CEO of the American Architectural Manufacturers Association, 847/303-5664, rwalker@ aamanet.org.
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