After a long period of enthusiasm for homebuilders’ stocks during the post-financial crisis re...
For Housing, the End Is Nigh
03/21/2012 12:45 pm EST
Focus: REAL ESTATE
The real-estate market is near a bottom, but don’t look to the government for help, says Barron’s Editor and President Edwin A. Finn, Jr..
What’s ahead for the housing market? We’re asking Ed Finn today. So Ed, what do you see on this front?
I think on the housing market, we’re getting very near the bottom on a national level. We could see 1% to 2% down this year, hopefully not more than that, and then see it rebound.
There’s one important caveat. There are a couple of markets like parts of Florida and also Nevada where it’s going to be years—it could be five years—before it recovers, because there is just not enough generation of new families. Things are so depressed that the overhang is going to be there for a while.
The good news is if we can put in bottoms for most of the country, that’s going to give people a feeling of more confidence and a base to build on. So we’re feeling fairly optimistic considering the difficulties we’ve been through in the last five years.
Now one thing that happened in the early part of 2012 was that the homebuilders’ index began to rally…some of the homebuilding stocks began to rally. What’s your take on that?
Well I think one of the problems we’ve had in the last couple of years is we’ve had some false rallies in those stocks. Some of them in particular: some homebuilders were holding a lot of land and that affected their situation. The homebuilders should be able to come back, and hopefully they’ll come back ahead of the market.
Unfortunately, a lot of the homebuilders have exposure in the places I talked about—Florida, Nevada, and certain parts of California. That hurts them, the oversupply.
One of the things clearly being an election year, we’ll hear a lot of political discussion undoubtedly about the homebuilding industry. How do you think any government action might affect that market?
Well, I think the government is trying to work with the banks to get some relief to homeowners, but it’s a very difficult situation. In surveys that we’ve done, if the government helps one group of homeowners, be it the people underwater or the people with sub-prime mortgages, there is an extremely strong reaction against that among the people who aren’t getting help.
There’s a sense of equity, or in this case inequity. That’s a political liability. I think there will be help, but I think to a great extent it’s going to be the laws of the market working itself out gradually.
Anything in particular investors should be watching for with regard to the homebuilding sector?
I think one thing is right now, you’re seeing a lot of investors go in to buy individual homes and use them as rental property, which is great. It’s helping the market.
When that gets replaced by more and more families buying home or trading up in homes, the confidence that places are not going to go down another 5% or 10%…that’s when things are going to be back on track. We’re getting to the point where supply will be eaten up over the next couple of years, and hopefully we can return to equilibrium.
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