By Michael Neal
NAHB hosted an economic and housing outlook seminar at its International Builders’ Show in Las Vegas inviting Frank Nothaft, chief economist at Freddie Mac, and David Berson, chief economist at Nationwide Insurance, to join David Crowe to discuss the outlook for 2015. Here’s the highlights.
A strengthening labor market, low interest rates, improving mortgage availability and growing pent-up demand will help to significantly boost single-family housing production in the year ahead and move the housing recovery to higher ground.
Accelerating economic growth and employment gains are the primary factors that have helped consumer confidence jump back to pre-recession levels, according to NAHB Chief Economist David Crowe.
The signs point to a more robust year for housing. Household balance sheets are returning to normal levels, home owners’ equity is increasing and significant pent-up demand is rising. More than 7 million existing home sales were postponed or lost during the downturn; and while some are lost forever, we should see some catch-up.
NAHB is projecting 993,000 total housing starts in 2014, up 6.7 percent from last year’s total of 930,000 units.
Single-family production is expected to rise 26 percent in 2015 to 804,000 units. This is a good beginning, but is still well below a normal level of 1.3 to 1.4 million single-family starts.
On the multifamily front, NAHB is anticipating 358,000 starts in 2015, up 2 percent from 352,000 last year.
The sale of new single-family homes is expected to hit 564,000 this year, a 29.3 percent increase above last year’s 436,000 in sales.
Meanwhile, residential remodeling activity is expected to register a 3 percent gain this year over 2014.
The ongoing housing recovery will see single-family starts steadily climb from 49 percent of normal production at the end of the third quarter of 2014 all the way up to 90 percent of normal by the end of 2016. Examining the recovery on a state level, by the end of 2016, the top 40 percent of states will be back to near normal production levels, compared to the bottom 20 percent, which will still be below 75 percent.
David Berson focused on household formations. The number of new household formations was far fewer in the current economic expansion than in previous recoveries.
Given the job growth we’ve seen in 2014, there should have been better household formations. The slower pace may be because the real acceleration in job growth has occurred just recently – in the last six months. As the economy and job growth continue to strengthen in 2015 this will be a significant factor to encourage people who have doubled up to move out on their own.
Moreover, the real slowdown in household formations has come from the Millennials, who have suffered disproportionately from stagnant wage growth and student debt. However, this key demographic is getting older and ready to set down roots. The leading edge are now in their young 30s. Homeownership desire is much higher for those who are in their 30s than those in their 20s.
Frank Nothaft also foresees a good year for housing.
Freddie Mac is projecting 3 percent economic growth in 2015, which would only be the second year in the last decade that we’ve seen growth at that level. A stronger economy supports a rise in household formation and home buying.
Not quite as bullish as NAHB, Nothaft expects that housing starts will rise about 15 percent in 2015, and that home sales will be up 4 percent, which would be the best year for home sales since 2007. He added that nationwide home prices this year should increase about 3.5 percent to 4 percent above last year’s level.
With 30-year mortgages currently running at about 3.75 percent, Nothaft called them “dirt cheap” and says he expects rates to rise this year but remain at affordable levels.