NAHB: Single-Family Housing Will Lead Construction Recovery

April 28th, 2016 by Editor

Single-family housing will power a construction recovery through 2017 as the multi-family sector cools off after several years of strong growth, according to economists who participated in Wednesday’s NAHB Spring Construction Forecast Webinar.

They say job growth, low mortgate rates and affordable prices will push the housing market higher into 2016. However, a shortage of construction workers and a lack of developable lots of land, along with tight access to acquisition, construction and development (AD&C) loans, will continue to be a drag on the recovery.

“Builders remain cautiously optimistic about market conditions,” said NAHB chief economist Robert Dietz. “2016 should be the first year since the Great Recession in which the growth rate for single-family production exceeds that of multifamily. And we see single-family growth accelerating in 2017 as the supply chain mends and we can expand production.”

Single-family production is expected to increase 14 percent in 2016 to 812,000 units and climb an additional 19 percent to 964,000 units in 2017. Multifamily starts are expected to decline 4 percent to 379,000 units this year, but rise 6 percent to 402,000 units in 2017.

Single-family production currently stands at 58 percent of normal activity, which NAHB defines as 1.3 million units produced on an annual basis. NAHB projects single-family production will rise to 64 percent of normal by the fourth quarter of this year and hit 77 percent of normal by the end of 2017. Multifamily production reached 395,000 units last year, exceeding the rate of 331,000 units that’s seen as normal.

Residential remodeling activity is expected to increase 3.3 percent in 2016 and rise an additional 1.3 percent in 2017.

Len Kiefer, deputy chief economist at Freddie Mac, said he sees housing being a bright spot for the overall economy. He said household formations should accelerate in the aftermath of the Great Recession, which saw 5.1 million fewer households formed than normal. Job growth is up, and home prices are rising about 6 percent annually, and appear to be in line with incomes and rents.
“Demographic tailwinds are helping to propel the housing market forward,” said Kiefer.

Freddie Mac is projecting 5.9 million total home sales this year, the highest level since 2006, and 6.2 million in 2017.

Regionally, Kiefer said that house price growth is the strongest in the South and West, with Nevada, Oregon, Washington, Colorado and Florida all posting double-digit statewide house price appreciation between December 2014 and December 2015.

NAHB senior economist Robert Denk said housing market conditions are improving across the nation, but the pace of recovery varies by state and region.

“A common theme has emerged,” said Denk. “The progress of market recovery is no longer a function of the boom-and-bust cycle marked by price bubbles, excess supply and foreclosures. The key driver of the housing recovery is now back to the underlying housing market fundamentals of population and job growth.”

The hardest-hit areas during the downturn included the “bubble” states of California, Arizona, Nevada and Florida and the industrial Midwest, where the recession worsened the ongoing loss of manufacturing jobs. Housing markets in the bubble states are on the mend thanks to job growth. while the Midwest continues to struggle.

“The basic principle remains the same,” said Denk. “A strong economy – whether helped, hindered or unaffected by the energy economy – will be a key factor driving housing recoveries going forward.”

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