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Economists: Housing Market Improving

Wednesday, October 28, 2015

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U.S. builders are expected to break ground on 1.33 million units in 2016 and hit 1.57 million units in 2017, a new forecast suggests.

According to economists from the National Association of Home Builders, several factors such as steady employment and economic growth, pent-up demand, affordable home prices and attractive mortgage rates are keeping the housing market on a “gradual” upward trajectory.

building
©iStock.com / photosbyjim

Thirteen percent of builders reported the cost and availability of labor was a significant problem in 2011 and that concern jumped to 61 percent in 2014, according to the NAHB.

Persistent headwinds related to shortages and availability of lots and labor, along with rising materials prices are impeding a more robust recovery, the economists noted.

The following predictions were announced during NAHB’s Fall Construction Forecast Webinar held Oct. 21.

‘All about Jobs’

“This recovery is all about jobs,” said NAHB Chief Economist David Crowe. “If people can get good jobs that pay decent incomes, the housing market will continue to move forward.”

The good news, Crowe added, is that total U.S. employment of 142 million is now well above the previous peak of 138 million that occurred in 2008.

The one caveat is that job growth has been concentrated heavily in the service sector, which tends to pay lower wages than goods producing jobs.

Labor, Lots and Materials

Crowe noted several factors that are hindering a more robust recovery in the housing market.

Citing an NAHB survey of its members, 13 percent of builders reported the cost and availability of labor was a significant problem in 2011 and that concern jumped to 61 percent last year, according to the NAHB.

About one-fifth of builders shared the same concerns regarding lots in 2011 and that ratio increased to 58 percent in 2014.

Concerns over building materials stood at 58 percent among builders in 2014, up from 33 percent in 2011.

Production Forecast

Using the 2000-03 period as a healthy benchmark when single-family housing starts averaged 1.3 million units on an annual basis, NAHB is projecting that single-family production will rise to 74 percent of normal by the fourth quarter of 2016 and climb to 91 percent of normal by the end of 2017.

house
©iStock.com / jeffhochstrasser

Single-family production currently stands around 740,000 units, or 53 percent of normal activity.

Single-family production currently stands around 740,000 units, or 53 percent of normal activity.

Production sank to 350,000 units in early 2009.

NAHB is projecting 719,000 single-family starts in 2015, up 11 percent from the 647,000 units produced last year. Single-family production is projected to increase an additional 27 percent in 2016 to 914,000 units.

On the multifamily side, production ran at 354,000 units last year, slightly above the 331,000 level that is considered a normal level of production. Multifamily starts are expected to rise 9 percent to 387,000 units this year and post a modest 3 percent decline to 378,000 units in 2016.

Residential remodeling activity is forecasted to increase 6.8 percent in 2015 over last year and rise an additional 6.1 percent in 2016.

Recovery Pace Varies by Region

The hardest hit areas during the downturn were a combination of the bubble states—California, Arizona, Nevada and Florida—and the industrial Midwest. The bubble states had the most excessive price and production spikes, while the problems in the Midwest were more related to fundamental economic weakness.

The most successful recoveries are happening now in the energy states, including North Dakota, Wyoming, Texas, Montana and Louisiana, NAHB reports.

Other states exhibiting strong employment and housing growth include South Carolina, Utah, Tennessee, Idaho, Oregon and North Carolina.

By the end of 2017, the top 40 percent of states will be back to 99 percent or more of normal production levels, compared to the bottom 20 percent, which will still be below 73 percent.

“Keep in mind that with all of these buckets, the numbers keep getting higher,” said Denk. “There is broad-based improvement across the country.”

What Millennials Want

Housing Economist Ralph McLaughlin, of Trulia, shared insight with regard to future home buyer preferences.

He said that contrary to popular belief, millennials prefer to own homes in the suburbs rather than rent in cities.

“Many believe that home buyers are bucking the trend of previous generations in that they want to live in urban areas and want to rent,” said McLaughlin.

“What we are finding from our surveys is just the opposite. Among millennial renters, almost 90 percent say they eventually want to purchase a home. That is significantly higher than Gen Xers, who were hurt by the recession, and quite a bit more than current baby boomer renters, who are at 40 percent.”

homebuyers
©iStock.com / skynesher

Millennials prefer to own homes in the suburbs rather than rent in cities, experts say.

However, an overwhelming majority of millennials, who are still starting households and paying off college debt, say it will be at least two years before they are ready to buy, the economist reported.

Where to Buy?

Roughly half of all Americans prefer to live in suburban areas, about a quarter prefer urban areas and just over 20 percent prefer rural communities, according to a Trulia survey conducted last November.

“As we get into the recovery, suburban areas are growing faster than urban areas,” said McLaughlin. “That is a sign that the urbanization trend we saw start to happen at the beginning of the recovery was more of a blip rather than a new rule.”

Moreover, “buyers are saying they prefer modern and modest sized homes in the suburbs with amenities,” he said, adding that 44 percent of Americans say they want to live in a house between 1,400 and 2,600 square feet.

Crowe also predicted an upcoming jump in mortgage rates, which currently stand below 4 percent. He said as the economy improves, he expects to see a 4.5 percent rate in 2016 and 5.5 percent rate in 2017.

   

Tagged categories: Construction; Economy; Home builders; Housing; Housing starts; Market; Market forecasts; National Association of Home Builders (NAHB)

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