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Spring Recovery: Dead on Arrival?

Market analysts are dialing back on their expectations for the housing sector this year following reports of continued sluggishness in what should have been the start of a busier season.

In a report issued earlier this week, Fitch Ratings announced it is tapering its forecast for 2014 in acknowledgement of what has so far been a “subpar spring selling season.”

Sales of both new and existing homes in March fell short of expectations, dashing optimistic projections of a rebound following the end of an unusually harsh winter. Housing starts also disappointed as homebuilders remain concerned about the shape of the market.

Looking past spring, Fitch’s report focuses on expected growth throughout the rest of the year, with housing starts and new home sales forecast to see percentage gains in the mid-teens. Average median new home prices, meanwhile, are expected to rise about 3.5 percent, a substantial moderation from growth over the past two years, which was largely seen as unsustainable.

However, even with early numbers coming up short, with two months left in the season, some commentators are saying it’s too early to write off spring as a disappointment just yet—including Bob Curran and Robert Rulla, directors and homebuilding analysts at Fitch.

“The biggest message that we put out was that we do see so far ... that [spring data] is disappointing relative to expectations,” Curran said. “[I]t was a very good spring last year, so the comparisons are kind of tough.”

Over the coming months, Curran says he expects to see more favorable year-over-year comparisons.

Furthermore, while data released so far might not be stacking up well against forecasts, Rulla sees little reason to be skeptical about summer projections: “There’s a little bit more caution given what transpired the first three months of the year, but we think that there’s still going to be growth in the overall housing market in 2014.”

As far as March’s low sales numbers are concerned, one thing to keep in mind is that inventory remains limited across the country and is especially weak in certain areas.

“Interpreting low sales volume in March as bearish—we think that’s misguided,” said Mike Simonsen, co-founder and CEO of real estate data firm Altos Research. “It doesn’t tell you anything about the actual demand for those homes. You can’t tell how many people want to buy homes by how many are sold.”

By Altos’ measure, the housing cycle is set to peak at the end of June before falling off into the fall and winter, as it does every year. Using that “map,” Simonsen says the company has good visibility on what the year as a whole should look like and predicts a 10 percent increase—an optimistic outlook compared to most others.

Meanwhile, at Clear Capital, the company is terming the latest slowdown in price changes “the new normal.”

“Even though we’ll see improved housing metrics across the board this summer, it won’t be the banner year that 2013 was,” said Dr. Alex Villacorta, VP of research and analytics for the company’s Data Division. “I think it’ll be more measured, [and] I think it’ll be more localized ... it may not show up in the national housing metrics numbers, but it certainly will be in certain markets.”

For the near future, Villacorta says the numbers to watch will be those in the mid-tier housing segment, where the most housing activity traditionally takes place. That happens to be a particularly weak area, though he believes even a small boost in the next month or two will help put the market back on more stable footing compared to the year’s early months.

“I think just seeing the signs of activity may turn the tides of confidence in consumers,” he said. “Probably in about 45 days, we’ll know what’s happening in spring fully.”


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