U.S. Business Insights: Housing Report March 2012

©2012 Dun & Bradstreetwww.dnb.com

D&B Housing Report

The current economic cycle has been

the most unique in recent history

due to the severe imbalances that

preceded the downturn and drove

the severity of the contraction. His-

tory has shown that the process of

correcting for extreme imbalances

usually takes time and is not a linear

journey.

Among the imbalances during the current economic cycle,

none was more disruptive than the run-up in housing and

the subsequent burst of the bubble. Home prices in some por-

tions of the U.S. surged in excess of 150 percent between 2000

and 2006. The resulting correction has resulted in historic levels

of foreclosures, declines in home values and a severe reduction

in household net worth. The correction in housing has been

a signifi cant drag on the economic recovery and a primary fac-

tor for its hesitant behavior, since to some degree the housing

industry correlates with the U.S. economic recovery.

Dun & Bradstreet has recently assessed the housing industry

using our proprietary data on delinquencies and failures. This

month’s report provides a perspective on the industry’s journey

back to health. The insights on the housing sector are broad-

based, but two signifi cant conclusions arose from the re-

search on the sector: 1) the healing process is progressing, but

the sector is still going through the adjustment process and

likely will not return to full health until the middle stages of

the decade at the earliest and 2) the challenges in housing are

increasingly becoming geographically concentrated with the

worst-hit regions demonstrating few signs of improvement

while other regions are shifting into a mild recovery.

D&B U.S. Business Insights Monthly ReportPublished March 2012 by Paul Ballew, D&B Chief Economist

Construction Delinquent Dollars: All States

Real Estate Delinquent Dollars: All States

*Department of Planning and Development

*

Delinquencies and Failure Data are Insightful

Consistent with the belief that the worst is behind us, the percentage of dollars 91 days past due in the Con-struction and Real estate sectors in the D&B database shows a sharp downturn starting mid-2011. Delin-quency levels are considerably lower than the beginning of 2010, suggesting the worst of the storm has clearly abated. Importantly, excluding four states (Arizona, California, Florida and Nevada) that have been identifi ed as hotbeds of the housing bubble and still struggling pockets of the country, delinquency levels are consistent-ly lower than the peak in 2008 and 2009 and the trends are positive.

One of the most startling elements of this pattern is the gap in delinquencies between the upper and lower tiered sectors – the most severely impacted states have delinquency rates almost six times higher than the best performing states, confi rming that the healing process in the most severely impacted states will take time. The same picture is also presented when the sub-sectors are studied individually including the Real Estate sub-sector.

An investigation on failures and bankruptcies in the two Housing sub-sectors of Construction and Real-Estate also shows signs of the upturn (see tables in appendix). Although failures and bankruptcies are still considerably above 2006 pre-recession levels, the signifi cant decrease since 2010 is once again notable. Failures and bankrupt-

cies have been more prevalent in the Real Estate sub-sec-tor, which also shows slightly higher declines since 2010, signifying a faster recovery compared to the Construc-tion sub-sector.

A closer look at the states shows a fairly consistent pat-tern wherein Nevada and Arizona feature consistently in the list of states (see tables in the appendix) projecting the highest percent of delinquent dollars (91 days past due) and the highest percent of businesses 91 days de-linquent. In addition, the review of quarterly delinquent dollars and businesses between 2008 and 2011 identify a few more problem states such as Utah and Illinois. The better states include Alaska, Maine, North Dakota, West Virginia and Vermont. North Dakota and Kentucky feature the fastest recovery rates in terms of, respective-ly, declining delinquent dollars and delinquent business-es. These states are also leading the economic recovery due in part to their dependency on the natural resources sector.

Overall, from D&B’s perspective, the housing sector is showing signs of restoration compared to its recession days, with most of the recovery having taken place in the past year. Nevertheless, the recovery will be incom-plete until the troubled states are able to pull out of their quandary, and this journey is still in its early stages. So, some bright spots? Yes. However, in betting on a housing recovery it is important to focus on the old

adage, “location, location, location.”


D&B U.S. Business Insights Monthly Report

Housing Delinquent Dollars: The Troubled States

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APPENDIX Failures and Bankruptcy in Construction & Real Estate

States with Lowest Delinquent Dollars

States with Lowest Delinquent Businesses

States with Highest Delinquent Dollars

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States with Highest Delinquent Businesses

Quarterly Delinquent Businesses: 2008-2011 Quarterly Dollars 91 Days Past Due: 2008-2011


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Economy & Finance

U.S. Business Insights: Housing Report March 2012