NAHB Optimistic for Continued Construction Growth

October 18th, 2012 by DWM Magazine

Optimism reigned during the National Association of Home Builders’ (NAHB) Construction Forecast webinar on October 17. David Crowe, NAHB chief economist, opened the session by pointing out how nicely it coincided with the Census Bureau’s release of good news in the area of housing starts, a “nice solid increase of 15-percent housing starts … and a similar increase in housing permits.” Crowe called this “solid evidence” that “recovery is underway.”

He was one of several speakers who would stress that recovery within single-family and multifamily housing is seeing a wide variation across various states but, overall, growth is slowly becoming the norm.

Crowe first addressed remodeling, noting that this sector is already close to the levels at which it sat in the early 2000s, what the forecasters consider a sustainable level. Multifamily construction, he added, is about two-thirds to that level and “well on its way” to recovery.

He hardly need add, “It’s the single-family component, usually the largest component of our industry that has been the slowest to return.” Crowe said that single-family construction is currently at 40 percent of what it was during that “sustainable” time.

Crowe went on to outline the reasons for his confidence in continued growth, first pointing to NAHB’s confidence indexes. In these indexes, measuring builder confidence, 50 marks the tipping point of where more builders or remodelers see conditions improving. “Builders are doing nothing more than reflecting what they’re seeing in their marketplace,” Crowe explained of the indexes.

The remodeling index has confidence now at 45. “We can’t quite get past that 50 mark,” Crowe said.

He added, “Multifamily, on the other hand, has passed that golden 50 mark.”

Demand is continuing strongly for multifamily housing as more households are being formed and opting to rent. However, Crowe predicts that as the economy improves this is likely to translate into homeownership. As of today, single-family confidence from builders sits at 41 on the NAHB index but, Crowe says, “We have been getting nice strong encouraging signs.”

Pointing to one of those signs, he said, “One of the leading reasons behind the particularly stronger support of the housing market … is we’ve finally begun to see on a national scale home prices pick up again.”

Looking forward, multifamily construction is forecasted to see “nice, strong growth,” since its 76-percent drop from its peak in 2008 to the lows of 2010. Crowe added, “I see that [segment] maybe taking a bit of a breather, but I think we will continue to see real demand …” From the low in 2010, where multifamily starts sat at 11,400 thousand, to today’s rate of starts at 224,000, Crowe forecasted that by 2014 multifamily starts will reach 275,000.

Crowe continued, “In the single-family sector, yes that was the one that collapsed the most, [an] 80-percent drop … but you have begun to see some pretty good strength in it for at least the better part of this year and I expect that to increase.” He predicted a 21-percent increase from this year compared to last year, with starts at 528,000. By 2014, Crowe expects starts to sit at 865,000.

Despite his bright outlook, Crowe did acknowledge a number of cautionary factors. Among them, credit remains tight. “It’s difficult to get production credit,” he said. He explained that the Federal Reserve’s Senior Loan Officer Survey and the NAHB’s survey of builder credit follow similar patterns. NAHB’s index, though, indicates that builders had a much tougher time getting credit than the Feds saw. “Oddly, they have both come down to close to the same level; I think that indicates there has been a slight improvement in the ability of builders to get credit,” Crowe said.

Appraisals have been a problem too, Crowe continued, adding that the majority of builders are still seeing appraisals below contract price. In addition, payroll growth has been a difficulty, so even if housing is in demand, people worrying about their employment future are not going to move.

“My last caution is basically all of the uncertainties that are out there,” Crowe concluded, citing the still unresolved factors of the fiscal cliff, tax reforms and future regulations.

Robert Denk, assistant vice president, forecast and analysis for NAHB, also spoke during the webinar and focused largely on the vast differences across states’ recoveries (or lack thereof), he did concur with the forecast that, nationally, single-family housing starts are expected to continue picking up.

“Everyone always asks: when are we going to get back to normal? And I say, well, that depends on where you are,” he commented. Looking nationally, he said, “The answer there is 2016, 2017, depending on how you cut it … but I want to emphasize … that’s the pace of all of the areas, both the strongest and the weakest getting back to normal.” For the strongest, Denk predicts that 70 percent of states will be back to “normal,” or sustainable, construction by the end of 2014.

By Megan Headley, mheadley@glass.com

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