Economy Poised to Assist Housing Recovery

David Crowe, Chief Economist of the NationalrnAssociation of Home Builders (NAHB) told members attending the Association’srn2014 Spring Construction Forecast Webinar that a stronger housing picture requiresrnan improved economy.  He added that therneconomy seems poised to respond as payroll employment continues to grow and thernunemployment rate slowly recedes.  Hernprojected the latter would shrink from its first quarter reading of 6.7 percentrnto 6.2 percent by year end.</p

Other economic bright spots include consumerrnconfidence which has returned to pre-recession levels and major purchases suchrnas motor vehicles and home furnishings are on the rise, indicating arnwillingness on the part of consumers to buy big ticket items which ultimatelyrncould include houses. </p

A growing economy, pent-up demand, low mortgagernrates and affordable home prices should keep housing moving upward this yearrnand next Crowe said, but there are headwinds including tight consumer credit,rnand shortages of lots and construction labor as well as rising prices forrnbuilding materials such as lumber, gypsum and oriented strand board.  These factors are hurting the ability ofrnbuilders to meet demand. </p

Crowe sees an increase in credit demand as well asrneconomic growth moving mortgages rates up to 5 percent by the end of 2014 and 6rnpercent by the end of the following year. rnThese rates are still low by historic standards, he said, and should notrnbe a significant deterrent to expansion in the housing market.</p

With new-home sales averaging just 8.8 percent ofrntotal home sales, barely half the historical average of 16.1 percent, Crowernobserved that “this is another reason to believe that the new-home marketrnwill have to make up existing ground.”<br /<br /Another webinar participant, Maury Harris, managing director and chief U.S.rneconomist at UBS agreed that the economy is on an upward trajectory and saidrnthat right now the banks are awash in cash. rn”Banks have over $2 trillion of excess reserves. That’s with arn’t,'” he said. “Banks would like to put that money to work andrnincrease lending, which will help the economy.”<br /<br /The recession caused real disruption in household formations and they havernfallen short by about 2.5 million as college graduates, unable to find jobs,rnmoved home or doubled up with other young adults in apartments.  As unemployment comes down and credit eases,rnhe said, the Millennials will feel better about their circumstances andrnhousehold formation will pick up.  Hernforecasts 700,000 single-family and 450,000 multifamily housing starts thisrnyear and 900,000 single-family and 450,000 multifamily starts next year.<br /<br /A third speaker, Robert Denk, NAHB's assistant vice president for forecastingrnand analysis, said there was a range of differences among the states in therndegree of pain they suffered during the recession and their progress inrnrecovering from it.  Housing productionrnbottomed out in early 2009 at an average of 27 percent and had recovered to 45rnpercent in the first quarter of 2013 but in some states production fell to 10rnto 15 percent of normal while in others it did not go below half.  </p

“The hardest hit states were the bubblernstates–Arizona, Florida, California and Nevada–along with the industrialrnMidwest, which struggles with challenges in the auto industry and a decliningrnmanufacturing sector,” he said.  Andrnwhere states stand now has a lot to do with how far they fell when thernrecession hit. </p

The energy sector is fueling recovery in a number ofrnstates and on a national basis single-family housing starts are projected to bernback to 70 percent of normal by the end of this year and 93 percent by the endrnof 2015 Denk said. </p

NAHB’s Remodeling Index has been above 50 for six ofrnthe last seven quarters indicating that more remodelers report activityrnimproved from the previous quarter than reported it lower. NAHB is forecastingrnthat residential remodeling will post a 3.8 percent increase in 2014 over lastrnyear and rise an additional 2.4 percent in 2015.<br /<br /Other predictions made by the three economists are that new-home sales willrnclimb 29 percent from 431,000 in 2013 to 557,000 this year and single-familyrnhousing production will increase 22 percent from 621,000 last year to 760,000rnin 2014 and surge an additional 55 percent to 1.18 million units in 2015. Onrnthe multifamily side, production is expected to rise 8 percent from 308,000 inrn2013 to 331,000 this year, reaching what is considered a normal level ofrnproduction.

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