IRVINE, CA—The inability of lenders to say yes to anybody other than borrowers with great credit risk is a problem that may not change for the foreseeable future, the Norris Group’s principal Bruce Norris tells GlobeSt.com. Morris will deliver a keynote address and mid-year economic update at the Building Industry Association—Orange County Chapter’s is annual developmental-trends conference “Insight 2016—What Inning Are We Really In?” here on June 10. Prior to the economic downturn in 2007, Bruce Norris had predicted the recession and will thus give his economic predictions for the upcoming year. We spoke exclusively with Norris about his economic predictions and what he feels is in store for the housing sector in the coming year.
GlobeSt.com: What are your economic predictions for the upcoming year?
Norris: I don’t think we’re going to have tremendous GDP growth, which is good for real estate and will keep interest rates reasonable. Real estate is being stunted by the inability of lenders to say yes to anybody other than the really great credit-risk borrowers. This is a problem that doesn’t seem to want to go away and may not change for the foreseeable future.
GlobeSt.com: What inning do you believe we’re really in with residential real estate?
Norris: It’s interesting because we’re probably in something like the fifth or sixth inning, and we could get to the bottom of the ninth if there was a radical interest-rate change. The numbers work pretty well if the mortgage rate starts with a 3; if it changes to a 5 or 6, which are much more normal interest rates, borrowers will have a different ability to qualify for a loan. Do I think we’ll have a rate rise? No.
GlobeSt.com: What surprises could be in store for the sector?
Norris: The ongoing surprise for me is the lack of construction. It’s a really disappointing number. The funny thing about charts is, you can look at the numbers and say construction has doubled, but in 2004 and 2005, we were building four times that amount. Construction drives a lot of other businesses including the migration of workers that occupy real estate. It fills industrial space with contractor stuff. But none of that is happening, so construction is being a poor contributor to GDP growth at this point, and we see that continuing where available land is. What we built in 2004 through 2006 was a 4,000-square-foot house in markets like Riverside; the prices for that never recovered—you can still buy that for $300,000, but there’s no way you can build it for that. We’d like to build, but we can’t with the existing home prices in those areas.
GlobeSt.com: What else should our readers know about the state of the market?
Norris: I just don’t see any catastrophic events ahead. A lot of people are talking about bubbles, but we’re missing too many elements for that. Usually, what happens in a downturn is that people start selling, but the unsold inventory of builders represents only 1.5% of the inventory. Inventory is down because we didn’t build tons of inventory. We’re also not allowing people with marginal ability to make a payment get into the market. Loan programs typically get pretty creative at the end of a cycle, but you don’t have that. So, we’re lacking two big elements that create downturns.