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September 2015

Despite many positive indicators, builders reluctant to notch up housing starts

Economists with Morgan Stanley expect 4.5 percent home price appreciation and up to 1.3 million total housing starts by the end of 2015. Of that total, about 700,000 will be single family starts.

As part of a mid-year outlook for builders, analysts at Morgan Stanley estimate an additional one million new households will be formed by year end. Renters are fueling much of that activity, according to that firm's research. Consequently, the homeownership rate is slipping.

New home sales are tracking toward the anticipated total of 500,000 to 550,000, resulting in year-over-year growth of 15-to-25 percent.

Ryan Gilbert, an equity analyst with Morgan Stanley's research department described this year's housing starts as "choppy." Figures show that segment with a low single-digit growth rate, but some improvement is evident.

Gilbert called existing home sales a "standout," citing figures showing the volume is heading toward the high end of projections.

Analysts say both housing affordability and existing homes sales are positive. Another positive note is an uptick in activity among first-time buyers, which Morgan Stanley analysts believe will be more pronounced in 2016. The outlook is tempered by the knowledge that rising mortgage rates could restrain sales since this segment is price-and rate-sensitive.

Despite many positive indicators, Gilbert said builders his company follows are split on making additional investments, with some saying the necessary improvement for them does not yet exist.

During the mid-year webinar, Gilbert also presented highlights of a builder survey it conducts with HomeSphere, a digital lead generation service for the industry.

When asked to identify their major concerns, local and regional builders who responded during July listed homebuilder labor shortage as their top concern, followed by the rising cost of building materials.

A recording of the 30-minute webinar on the "2015 Outlook for the U.S. Housing Market" is available for reply on the HomeSphere website.