NAHB Construction Forecast: Normal is On the HorizonOctober 22nd, 2015 by Trey Barrineau
The housing market could take off in the next two years as the U.S. economy continues to recover from the Great Recession, according to the National Association of Home Builders (NAHB) 2015 Fall Construction Forecast webinar, held on Wednesday.
By the end of 2016, single-family housing starts are forecast to hit more than 900,000 units, or about 74 percent of normal. That number could rise to more than 1 million units, or 91 percent of normal, by 2017. Normal is defined by the NAHB as 1.3 million single-family housing starts annually. It’s based on figures from 2000-2003, before the housing bubble took off.
The housing market is currently at 53 percent of normal.
“It’s no longer about the carnage of the housing bust — now it’s about the economy,” said Robert Denk, senior economist for NAHB, during Wednesday’s webinar. “It’s about population and job growth. It’s a very different place than the early rounds of the recovery. I think 2016 has a lot of potential to really accelerate the recovery.”
Denk said the industrial Midwest, with the softest labor markets, will see the slowest recovery, while the “energy states” (which include Texas, Louisiana, North Dakota, Wyoming and Montana) will continue to see strong growth. Other states exhibiting strong employment and housing growth include South Carolina, Utah, Tennessee, Idaho, Oregon and North Carolina.
“Housing production is rebounding in all regions,” Denk said. “Prices are rebounding in all regions, and foreclosures are back to normal,” though some areas are still struggling with that issue. Denk also thinks house price growth will stay positive but soften.
NAHB chief economist David Crowe said single-family housing starts have grown 11 percent in 2015. Single-family production is projected to increase an additional 27 percent in 2016 to 914,000 units.
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.
Remodeling grew 6.8 percent in 2015, and it’s expected to grow 6.1 in 2016.
It’s All About the Jobs
The improving labor market spells great news for the housing market, Crowe said.
“This recovery is all about jobs,” he said. “If we can get people good jobs, the housing market will continue to move forward.”
Crowe said the U.S. is well above its last peak in total employment. About 142 million people are employed today, ahead of the previous high of 138 million in 2008. Crowe said the NAHB expects the U.S. to add 3 million jobs in 2016 and 3.1 million in 2017.
While the job growth is impressive, Crowe emphasized that much of it is coming in the lower-wage service sector. According to the NAHB, total employment in the higher-paying goods-producing sector is down 12.1 percent since 2007. It’s up 7.1 percent in the service sector during that time.
Speed Bumps Ahead
The housing market still faces some headwinds, however.
Crowe said an NAHB survey found that the cost and availability of labor was one of the biggest concerns for homebuilders. More than half of builders are concerned about labor shortages, more than in the peak of the boom from 2004-2007, when the U.S. was constructing twice as many homes a year as it is now.
Wage rates have declined. In 1990, residential construction workers made 14 percent more than general wage rate, Crowe said. In 2014, there were only making 4 percent more.
Additionally, 62 percent of builders report having trouble finding buildable lots for projects, and concerns over building materials stood at 58 percent among builders in 2014, up from 33 percent in 2011.
Also, echoing the consensus of most economists, Crowe said mortgage rates will be going up.
“Face it – we can’t continue to live on 4 percent mortgages,” he said.