Robert A. Simons Ph.D.
Professor
Levin College of Urban Affairs
Cleveland State University
r.simons@csuohio.edu
With help from Arthur Schmidt
2013-2014 Housing
Forecast
Presented to Cleveland Homebuilders
Association (HBA)
November 8, 2012
CLEVELAND METRO IN THE STATE,
NATION AND WORLD
• We are nested in the world economy
• We have 11 fortune 500 companies in NE Ohio
• Our manufacturing is down
• Our medical is up
• Our housing prices are cheap
• Our bubbles, if we have them, are small
• Our local government is fractionalized and our local tax burden is
high
•
•
We tend to lead nation into recession and lag them out
We now have shale-gas fracking as an engine, just emerging
US: LOOKING BACK TO 1999 AND BEYOND
 Longer view: since @1970; recessions in 1974 (oil
shock) 1979-1981 (more oil and stagflation ) 1982
(double dip); 1986-1989 (real estate only – tax code
driven); 1991 (economic exhaustion) and 2001 (9-11)
 Expansion from 2002 until 2007-2008 recession
(Financial rules and liquidity driven, FNMA, FMC, AIG)
 7 recessions in 42 years=Average of a recession every
6 years
 Since 1999=average cycle: 2 recessions in 12 years
 Housing construction leads us out of a recession:
NOT!
 US Employment Mix: since 1999: MFG.-32%; CONST.12%; SERV (except education) +4%; LEISURE +12%;
GOV’T +9%, HEALTH CARE +30%
INTERNATIONAL
THINGS TO WATCH
• ASIA / CHINA GROWTH
• EUROPE MELTDOWN
• MIDDLE EAST TURMOIL
• US SUSTAINED RECOVERY / FISCAL
CLIFF
WSJ OCTOBER 2012
Greek
Debt
is > 8%
over
German
rate
EUROPE - MONETARY UNION?
• EU IS AT A CRITICAL POINT
• NATIONAL FISCAL AND BANKING
SECTORS NEED TO BE MERGED
• GERMANY WOULD PAY THE BAILOUT BILL FOR WEAKER SISTERS
(Portugal, Ireland, Spain, Italy)
• EURO UNLIKELY TO COLLAPSE
(FEAR), BUT STRONG
ENFORCEMENT NEEDED
• FUTURE OF UNION STILL NOT
CLEAR, BUT RECESSION IS
•
•
•
•
•
•
•
•
•
MIDDLE EAST
IRAN AND NUCLEAR SANCTIONS
SYRIA CIVIL WAR CONTINUES
PALESTINIAN INTERNAL DISCORD
EGYPT ARAB LEADER –PROGRESS?
ISRAELI-PALESTINIAN PEACE EFFORT
LEBANON –TINDERBOX
TURKEY AND THE KURDS, ARMENIANS
IRAQ, AFGHANISTAN WINDING DOWN
EFFECT ON INTERNATIONAL RELATIONS
AND ENERGY PRICES
US ISSUES
• 4 MORE YEARS OF DEMOCRATIC
PRESIDENT, AT LEAST 2 MORE
YEARS OF SPLIT CONGRESS
• MONETARY AND FISCAL POLICY
• ECONOMIC GROWTH
• CONSTRUCTION
FEDERAL FUNDS TARGET RATE
 Fed target rates remain at all time lows
 For how long? ANOTHER FEW YEARS
 INTEREST RATES ARE SO LOW, ELDERLY
PEOPLE CAN’T EASILY LIVE OFF THEIR INCOME
THE ECONOMIST 11/3/12
2.2% GROWTH IS THE NEW NORMAL
BUT THE STOCK
MARKET
DROPPED 2+% !!
Demand side
• Borrowers are CLAWING THEIR WAY
BACK from underwater
• Still have artificial backlog of foreclosed
property
Percent of Homeowners Underwater, U.S.
35.00%
30.00%
28.60%
26.80%
2012 –
CLOSER
TO 2325%
25.00%
23.20%
22.30%
20.00%
Percent Underwater
15.00%
10.00%
5.00%
Source:
Zillow
0.00%
2009 Q1
2010 Q3
2011 Q2
2011 Q3
House prices are
firming
YEAR ON YEAR % CHANGE
And construction is
starting to pick up a bit
In OhioFRACKING
(shale gas recovery)
• Fracking will affect NE Ohio
• 2 shale layers, Marcellus and Utica
• Ohio unemployment rate 7%, <US
• Shale will be a substantial Driver of
growth
But….
• Banks are slow to pick up
• Fannie and Freddie are still in limbo
• And strengthening house sales will slow
rental growth
Simons 2013-2014 forecast
 US GDP positive, relatively low @2.2% AND STEADY. No double dip
•
Consumer confidence mixed at best, stocks recovered @DJIA=
13,000. Firms doing better.
•
Little risk taking. STILL Lots of cash on sidelines. Short term rates
<1%. More savings healthy in long run. Reasonable consumption
also. Older folks need to work
•
Bouncing along the bottom, Jobless recovery, BUT UNEMPLOYMENT
RATE <8%.
•
Presidential election year 2012 ---- 4 more years of OBAMA. Fiscal
cliff gridlock?
•
Housing prices and re-sales stabilized at lower levels, inching up.
Continued residential foreclosures will hold prices down and
compete with existing inventory. Residential construction down
>70%, but glimmers of hope
 Commercial refinancing issues have not been resolved. Retail sector
problematic, but improving slightly. Loan originations, servicing, new
commercial construction lending will be flat, at very low levels down
>90%. Hang on
 Some housing niches still active. LIHTC, new location thrill/upper
end. MF/rental unit starts inching up, New micro-homes?
 New construction: SOME ACTIVITY, STILL WON’T BE ROBUST FOR
next few years
Robert A. Simons Ph.D.
Professor
Levin College of Urban Affairs
Cleveland State University
r.simons@csuohio.edu