On the House: Economic recovery remains elusive

Posted: May 27, 2012

Economic recovery is just around the corner.

How often in the last four years have we read a report touting that eventuality, and the “bottoming out” of prices that the housing industry has been hoping for?

I tread water in an ocean of contradictory data. Housing starts are up, but permits are down. Sales of previously owned homes are higher, but those of newly constructed homes edge toward all-time lows.

Right around the corner … .

At its spring meeting in Chicago, members of the prestigious Counselors of Real Estate heard two respected academics recommend that they look beyond “typically quoted, surface-level statistics” for answers to tough questions about the economy.

The data have shown a boom in multifamily housing in the last two years, as younger adults continue to delay homeownership in favor of apartment living. That has led investors to battle over the available multifamily inventory and developers to break ground for buildings, in Philadelphia and elsewhere.

But Joel Kotkin, of California’s Chapman University, told the counselors that despite this continued interest, there is now overinvestment in multifamily housing, making it not necessarily a wise place to put one’s money.

Kotkin went as far as to call multifamily housing “the flavor of the month.”

Although some demographers show movement of empty-nesters to cities from suburbs, and some of Philadelphia’s recent population increase has been cited as evidence of that, Kotkin predicted continued suburban growth over the next few decades. He said it was “a myth” that empty-nesters would move into city condos at the volume predicted by the real estate industry.

As young people approach marriage age, Kotkin said, they still prefer single-family housing and continue to choose “the affordability and lower density of suburbs as opposed to city dwellings.”

Not only are people still moving to the suburbs, but people there are staying in their homes longer than before, Kotkin said. That’s making the suburbs multigenerational, and additional development may be needed to accommodate demand by first-time home buyers.

Though immigration to the United States has slowed, ethnic preferences are shifting to suburban over urban locations, he said.

Erik Hurst, of the Booth School of Business at the University of Chicago, told the group that recovery is anemic and predicted that there would be no big turnaround in housing prices soon, no “big bounce” in consumption, no increase in manufacturing, and continued unemployment issues.

He said the period of rapid economic growth, rising housing prices, rampant development, and high employment in the early to mid-2000s was a deviation from the norm.

It’s not realistic to assume that household spending will return to anything near prerecession levels anytime soon, Hurst said, because “people overspent — now, they’re not spending”

“Historically, housing prices increased from zero to two percent per year,” he said, asking why anyone would assume prices could rise above that with the extremely low current demand.

The United States should “expect persistent unemployment, particularly among men with only a high school education or less,” Hurst said, adding that about one-half of the nation’s employment-age males are considered “low skilled” because of lack of education and training.

“Low-skilled men got a reprieve in the housing boom in construction, and before that, in manufacturing,” Hurst said, “but that’s gone.

“From here,” he said, “it only gets worse for that huge demographic group.”

“On the House” appears Sundays. Contact Alan J. Heavens at 215-854-2472 or aheavens@phillynews.com, or follow on Twitter @alheavens.

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