David Crowe, Chief Economist of the National
Association of Home Builders (NAHB) told members attending the Association’s
2014 Spring Construction Forecast Webinar that a stronger housing picture requires
an improved economy. He added that the
economy seems poised to respond as payroll employment continues to grow and the
unemployment rate slowly recedes. He
projected the latter would shrink from its first quarter reading of 6.7 percent
to 6.2 percent by year end.
Other economic bright spots include consumer
confidence which has returned to pre-recession levels and major purchases such
as motor vehicles and home furnishings are on the rise, indicating a
willingness on the part of consumers to buy big ticket items which ultimately
could include houses.
A growing economy, pent-up demand, low mortgage
rates and affordable home prices should keep housing moving upward this year
and next Crowe said, but there are headwinds including tight consumer credit,
and shortages of lots and construction labor as well as rising prices for
building materials such as lumber, gypsum and oriented strand board. These factors are hurting the ability of
builders to meet demand.
Crowe sees an increase in credit demand as well as
economic growth moving mortgages rates up to 5 percent by the end of 2014 and 6
percent by the end of the following year.
These rates are still low by historic standards, he said, and should not
be a significant deterrent to expansion in the housing market.
With new-home sales averaging just 8.8 percent of
total home sales, barely half the historical average of 16.1 percent, Crowe
observed that “this is another reason to believe that the new-home market
will have to make up existing ground.”
Another webinar participant, Maury Harris, managing director and chief U.S.
economist at UBS agreed that the economy is on an upward trajectory and said
that right now the banks are awash in cash.
“Banks have over $2 trillion of excess reserves. That’s with a
‘t,'” he said. “Banks would like to put that money to work and
increase lending, which will help the economy.”
The recession caused real disruption in household formations and they have
fallen short by about 2.5 million as college graduates, unable to find jobs,
moved home or doubled up with other young adults in apartments. As unemployment comes down and credit eases,
he said, the Millennials will feel better about their circumstances and
household formation will pick up. He
forecasts 700,000 single-family and 450,000 multifamily housing starts this
year and 900,000 single-family and 450,000 multifamily starts next year.
A third speaker, Robert Denk, NAHB’s assistant vice president for forecasting
and analysis, said there was a range of differences among the states in the
degree of pain they suffered during the recession and their progress in
recovering from it. Housing production
bottomed out in early 2009 at an average of 27 percent and had recovered to 45
percent in the first quarter of 2013 but in some states production fell to 10
to 15 percent of normal while in others it did not go below half.
“The hardest hit states were the bubble
states–Arizona, Florida, California and Nevada–along with the industrial
Midwest, which struggles with challenges in the auto industry and a declining
manufacturing sector,” he said. And
where states stand now has a lot to do with how far they fell when the
The energy sector is fueling recovery in a number of
states and on a national basis single-family housing starts are projected to be
back to 70 percent of normal by the end of this year and 93 percent by the end
of 2015 Denk said.
NAHB’s Remodeling Index has been above 50 for six of
the last seven quarters indicating that more remodelers report activity
improved from the previous quarter than reported it lower. NAHB is forecasting
that residential remodeling will post a 3.8 percent increase in 2014 over last
year and rise an additional 2.4 percent in 2015.
Other predictions made by the three economists are that new-home sales will
climb 29 percent from 431,000 in 2013 to 557,000 this year and single-family
housing production will increase 22 percent from 621,000 last year to 760,000
in 2014 and surge an additional 55 percent to 1.18 million units in 2015. On
the multifamily side, production is expected to rise 8 percent from 308,000 in
2013 to 331,000 this year, reaching what is considered a normal level of