Source: National Association of Home Builders, Washington, D.C.
Mirroring the uneven economic recovery, the housing market is expected to move in a slow, gradual upward path in 2012, while encountering its share of speed bumps along the road, according to economists participating in NAHB's construction forecast webinar on the housing and economic outlook. While the latest monthly housing data have shown signs of a slight softening, NAHB Chief Economist David Crowe said this is more reflective of typical month-to-month volatility in the numbers and unusual seasonal factors than they are an indication of any significant downward trend in the broader housing market.
Pointing out that less volatile quarterly data have continued to show modest improvement in key housing indicators such as builder sentiment, new-home sales and housing production, Crowe said the “housing outlook continues to slowly brighten.”
New-home sales are expected to climb from a record-low of 305,000 units in 2011 to 357,000 this year and 505,000 in 2013. Existing single-family sales are expected to follow suit and rise from 3.8 million last year to 4.4 million in 2012 and 5.4 million next year. Housing starts are also anticipated to move in the same upward trajectory, Crowe said, with single-family housing production increasing from 434,000 units last year to 503,000 this year and a more solid 660,000 in 2013.
On the multifamily side, starts posted a healthy 55 percent increase in 2011 over 2010. NAHB is anticipating that multifamily starts will rise from 177,000 units last year to 216,000 in 2012 and 235,000 in 2013. With many households choosing to stay in place and remodel their homes rather than move, residential remodeling is expected to rise 12 percent this year and another 7.9 percent in 2013.
Crowe noted that numerous other fundamentals remain positive for housing at this time, including demographic factors (with pent-up household demand expected to ramp up and echo-boomers heading into their prime household formation ages), historically favorable mortgage rates that are not expected to move higher than 5 percent by the end of next year, more than 100 local markets currently listed on the NAHB/First American Improving Markets Index, and the fact that house price-to-income ratio has now returned to its historical average of about 3-to-1 versus the nearly 5-to-1 to which it had previously risen during the height of the housing boom.
However, he cautioned that housing still continues to face formidable challenges of its own—such as rising foreclosures, persistently tight lending standards for home buyers and builders and difficulties in obtaining accurate appraisals. Moreover, disappointing job growth numbers in March and uncertainty in the European economy are undermining prospects for a vigorous recovery.
Housing nationwide bottomed out at an average 27 percent of normal production, which Crowe defines as the residential building that occurred in 2000 to 2003, before the housing boom. The hardest hit states—such as California, Florida, Nevada and Arizona—bottomed out at between 10 percent and 15 percent of normal production, while better states, in sharp contrast, declined to 50 percent of normal production.