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Economists Forecast Continued, Modest Growth for Housing

Economists Forecast Continued, Modest Growth for Housing
Though numerous factors are constraining the pace of the housing recovery, rising home prices and increasing household formations will likely spur double-digit gains in both single- and multifamily construction this year, and the outlook in general is brightening, said economists during NAHB's Construction Forecast webinar this week.

NAHB Chief Economist David Crowe noted that the broadening housing recovery, as evidenced by the 75% of metros currently listed on the NAHB/ First American Improving Markets Index, is largely due to improvements in house prices across much of the country, which are boosting consumer confidence in the market. The latest data shows a nearly 6% annual rate of home price appreciation on a national basis. 

Meanwhile, it appears that housing is regaining its traditional role of leading the economy forward, with growth in residential fixed investment well outpacing GDP growth through all of last year. Both NAHB's chief economist and UBS Chief Economist Maury Harris pointed to rising demand for housing as a reason for solid optimism about the sector heading forward. Not only is the U.S. just entering a period when a large segment of the population is hitting the prime ages for household formation, but many new families are playing catch-up following the recession.

During the boom period, about 1.4 million households were being formed per year; this dropped to about half a million per year as jobs evaporated, but in recent quarters that pace has nearly doubled. Importantly, most of these new households are heading to the rental market, which is helping drive multifamily construction to an expected 35% gain to 334,000 units in 2013 followed by another modest gain to about 349,000 units in 2014. Meanwhile, the single-family market, which has the most ground to recover on the way back to normal, is making steady gains even as rising costs and supply issues for building materials, lots and skilled labor are squeezing builders' ability to do business. NAHB is forecasting a 23% gain in single-family housing starts to 672,000 units in 2013, followed by another 28% gain to 858,000 units in 2014. Of course, the degree to which local markets are recovering varies according to local economic conditions, with those in energy-producing states such as North Dakota, Texas, Oklahoma, Wyoming, Montana and Louisiana expected to return to normal production levels by the end of next year while others will take somewhat longer.

New-Home Sales Inched Upward in March

Sales of newly built, single-family homes rose 1.5% to a seasonally adjusted annual rate of 417,000 units in March, according to data released by the federal government on April 23. The regional picture was mixed, with sales gaining 20.6% in the Northeast and 19.4% in the South while falling 12.1% in the Midwest and 20.9% in the West.  The inventory of new homes for sale held virtually unchanged at just 151,000 units, which amounted to a 4.4-month supply at the current sales pace. Commenting on the numbers, NAHB Chief Economist David Crowe said, “The latest sales report is right in line with our forecast for continued, modest increases in home prices and sales through 2013." He also noted that at this point, "We are about half-way back to what would be considered a ‘normal’ level of sales activity as challenges related to supplies of credit, building materials, lots and labor are slowing the pace at which builders can build and sell new homes.”

Judson Provides Builder Views on Senate Immigration Bill

In testimony before the Senate Judiciary Committee this week, NAHB Chairman Rick Judson urged Congress to implement a new market-based visa system that would allow more immigrants to legally enter the construction workforce each year as part of the Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744). While the nation's home builders commend the bipartisan Senate sponsors of this proposed legislation to advance comprehensive immigration reform, lawmakers must improve the guest worker provisions in the bill to address the significant role that foreign workers play in the housing industry and help alleviate current labor challenges that are hampering the housing and economic recovery, Rick said.

NAHB believes the program is unworkable for the residential construction industry. As currently written, it "wrongly singles out the construction industry with a discriminating set of rules, including an arbitrary and meager cap that not only ignores but rejects the value of the housing industry to the nation’s GDP,” he noted. “Our industry, which in normal times accounts for more than 17% of the nation’s total economic output, should be afforded the same opportunities as any other sector of the economy. Congress must reassess this critical flaw in the legislation.”

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  • Joanne Loftus
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