In a recent Construction Forecast Webinar, David Crowe, the National Association of Homebuilder’s chief economist said, “The nation’s growth is finally being driven by housing again.” House prices have been increasing as demand increases and inventory shrinks. Employment continues to strengthen and this is a major factor in home-buying decisions. The scope of the housing recovery is now national.
However, the recovery isn’t in full effect yet. Housing accounts for 3 percent of the total economy, which is half its historical level. Single-family home starts are currently at 47 percent. The normal annual level to meet anticipated demographic and population trends is 1.3 million units. There are also issues like unpredictable appraisals, labor shortages, increasing cost of materials, and lender requirements that can stall the industry’s progress.
Crowe also used information from the Conference Board and the University of Michigan’s consumer confidence polling which reflects that the number of people wanting to buy homes is growing. And in the last four quarters, household construction was at 860,000 for the year, which increased from the 500,000 during the crash.
Crowe stated that renters were the driving force for this demand. He also estimates that the multi-family sector will increase 35 percent to 334,000 starts for 2013 and an additional 5 percent to 349,000 starts in 2014.
The NAHB expects single-family starts to increase 26 percent to 672,000 units and another 28 percent in 2014 to 858,000 units. Assistant vice president of forecasting and analysis, Robert Denk said the rate of recovery in each state will vary. He predicts that the top 20 percent of states will be at 87 percent of normal production and the bottom 20 percent will still be below 60 percent in 2014.
Housing trends are still moving in the right direction. Denk said, “All of the leading house-price indices tell the same story that prices are starting to rise again.” Foreclosure activity is substantially low in the majority of the nation.
The NAHB is expecting demand for new homes to increase. Maury Harris, managing director and chief economist for UBS who also participated in the webinar explained that there’s an estimated 2 million gap between potential household formations and actual household formations.
The banking system is making $85 billion a month because the Federal Reserve is keeping interest rates low. Harris said, “So banks are now flush with cash.” Even though he expects the Fed to cut back on quantitative easing (QE), he only expects a 1.3 to 1.4 percentage point increase in rates in the next 18 months.
He thinks that household formations will need five years to catch up with demographic trends citing immigration as the issue for labor. Builders have been struggling to find construction labor and immigration laws are adding to their struggle. The Census Bureau estimates that 22 percent of the construction workforce is made up of immigrants.
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