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June 2014

Home Builders Buoyed by Recovering Economy

But Several Obstacles Hindering New Construction

By NWREporter

June 2014

Housing, like the economy, is recovering but the pace is hampered by a number of factors according to the chief economist for the National Association of Home Builders.

In the group's Spring Construction Forecast Webinar held in late April, NAHB economist David Crowe said new-home sales are averaging just 8.8 percent of total home sales, about half the historical average of 16.1 percent.

NAHB expects new-home sales will climb 29 percent from 431,000 in 2013 to 557,000 this year. Single-family housing production is projected to increase 22 percent from 621,000 last year to 760,000 in 2014 and surge an additional 55 percent to 1.18 million units in 2015.

Multifamily production is expected to rise 8 percent from 308,000 in 2013 to 331,000 this year, reaching what is considered a normal level of production.

Robert Denk, NAHB's assistant vice president for forecasting and analysis, cited a range of differences among the states in the amount of distress suffered during the recession and the progress that is being made in recovering.

On a national basis, single-family housing starts are projected to get back to 70 percent of normal production by the end of this year and 93 percent of normal by the end of 2015, Denk said. By the end of 2015, he believes the top 40 percent of states will be back to normal production levels, compared to the bottom 20 percent, which will still be below 80 percent.

Crowe expects a growing economy, pent-up demand, competitive mortgage rates and affordable home prices will keep housing on an upward trajectory through 2015. Consumer confidence is back to pre-recession levels and consumers are showing more willingness to buy bit ticket items, he added, mentioning rising sales of motor vehicles and home furnishings as indicators.

Several obstacles are hindering a more robust recovery and hurting builders' ability to meet demand. Tight consumer credit, shortages of lots and labor and price hikes for materials are among obstacles NAHB cites as impediments. 

"Moreover," Crowe proclaimed, "creditworthy borrowers, particularly younger families and first-time home buyers, are having difficulties in getting home loans."

Another webinar speaker, Maury Harris, managing director and chief U.S. economist at UBS, said that financial lending institutions are sitting on a mountain of cash.

"Banks have over $2 trillion of excess reserves. That's with a "T" he emphasized. "Banks would like to put that money to work and increase lending, which will help the economy."

Harris expects the rate of household formations will improve. "As unemployment comes down and credit availability eases, Millennials (the 25-34 age group) will feel better about their economic circumstances," said Harris. "I think we will see the shared household rate come down, less doubling up and a pickup in household formations."