Steady employment and economic growth, pent-up demand, affordable home prices and attractive mortgage rates will keep the housing market on a gradual upward trend in 2016. However, persistent headwinds related to shortages and availability of lots and labor, along with rising materials prices are impeding a more robust recovery, according to economists who participated in the NAHB Fall Construction Forecast Webinar on Oct. 21.
“This recovery is all about jobs,” said NAHB Chief Economist David Crowe. “If people can get good jobs that pay decent incomes, the housing market will continue to move forward.”
The good news, Crowe added, is that total U.S. employment of 142 million is now well above the previous peak of 138 million that occurred in 2008.
The one caveat is that job growth has been concentrated heavily in the service sector, which tends to pay lower wages than goods producing jobs. Meanwhile, home equity has nearly doubled since 2011 and now stands at $12.5 trillion. “The single biggest asset in most people’s portfolio is the home they own,” said Crowe. “That’s important because the primary purchasers of new homes are the sellers of existing homes. The more equity they have, the more comfortable they feel about purchasing a new home.”
And while mortgage interest rates are expected to rise over the near-term, averaging 4.5% in 2016 and 5.5% in 2017, Crowe said this is not expected to have an impact on the housing recovery. “As the economy gets better, job and wage growth should keep pace. So even though mortgage rates will rise, they will still be low by historical standards and very affordable.”
Crowe noted several factors that are hindering a more robust recovery. Citing an NAHB survey of its members, 13% of builders reported the cost and availability of labor was a significant problem in 2011 and that concern jumped to 61% in 2014.
About one-fifth of builders shared the same concerns regarding lots in 2011 and that ratio shot up to 58% in 2014. Concerns over building materials stood at 58% among builders in 2014, up from 33% in 2011.
Single-Family Continues to Post Gains
Turning to the forecast, NAHB is projecting 719,000 single-family starts in 2015, up 11% from the 647,000 units produced last year. Single-family production is projected to increase an additional 27% in 2016 to 914,000 units. On the multifamily side, production ran at 354,000 units last year, slightly above the 331,000 level that is considered a normal level of production. Multifamily starts are expected to rise 9% to 387,000 units this year and post a modest 3% decline to 378,000 units in 2016. Residential remodeling activity is forecasted to increase 6.8% in 2015 over last year and rise an additional 6.1% in 2016.
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