February 14th, 2014
After 2013 had consistently low levels of available housing, 2014 is projected be a year of gains.
According to economists speaking at the National Association of Home Builders’ International Builders Show in Las Vegas, the single-family market is expected to see noticeable growth throughout the year and push the U.S. housing industry toward further stability.
“My single-family forecast for 2014 is pretty aggressive – 822,000 starts which is likely 200,000 more than 2013,” said David Crowe, NAHB chief economist. “There are five key points to the turnaround: consumers are back, pent-up demand is emerging, there is a growing need for new construction, distressed sales are diminishing and builders see it.”
Consumer sentiment has finally matched pre-recession ratings, and household debt is declining. Furthermore, household formations have posted strong year-over-year figures, with a current average of 620,000. During the housing downturn, the average was 500,000, and there were about 1.4 million new households each year during the housing boom.
Sales conditions improving
One of the factors contributing to low inventory has been the increasing pace of sales. The NAHB said that new home sales have not been performing as well as existing homes sales, as they only average 8.7 percent of total home sales. The historical average is 16.1 percent.
Despite this decline, mortgage performance has been on a positive trend and builders are confident about sales. The NAHB/Wells Fargo Housing Market Index consistently had a rate higher than 50 for the eight months ending in January. The HMI, which measures builder confidence regarding the single-family market, denotes any rating above 50 as an indication that builders see sales conditions as good rather than poor.
Bolstered housing starts to come
The NAHB predicted that there will be 1.5 million total housing starts in 2014. Compared to 928,000 starts in 2013, this will be a 24.5 percent increase.
In the single-family market, a 32 percent increase is expected, putting total starts at 822,000 units. In 2015, the NAHB expects a 41 percent rise to 1.16 million starts. In regard to sales, the single-family market is predicted to reach 584,000 units in 2014, 35.9 percent more than 430,000 sales last year. New multifamily construction is projected to reach 333,000 units, a 9 percent gain compared to 306,000 units in 2013.
Based on the forecasted growth, Crowe said housing starts will be at 71 percent normal activity by the final quarter of 2014. By 2015, new housing construction will be operating at 93 percent normal activity, and 20 percent of all states will have normal production.
Demand figures to promote growth
Despite the bad rap that pent-up demand sometimes receives, it has been a driving factor in the push for new housing.
“At least 3 million fewer households formed over the past five years than would normally have been expected,” said David Berson, senior vice president and chief economist for Nationwide Insurance.
With many college graduates returning home to live with their parents instead of transitioning in their own household, the figures have been waning. However, Berson noted that improvements to the economy and the employment sector will aid in expanding the rate of household formations.
“I think this will be a pretty good year for home construction,” Berson continued. “There will be a big increase in single-family construction, but not as much for multifamily.”
Affordable and available housing
Even though mortgage rates are expected to rise due to tapering of the Federal Reserve’s quantitative easing program, Freddie Mac Vice President and Chief Economist Frank Nothaft asserted housing affordability will be unaffected. Furthermore, purchase mortgages are expected to outpace refinances as homebuyers see more options.