Housing Forecast: Blue Skies Ahead

October 31st, 2014 by Editor

Following one of the coldest winters in recent history, the residential construction market is now on track to heat up again. That was the update coming out of the National Association of Home Builders (NAHB) Economic and Housing Outlook webinar.

“It’s been up and down,” said NAHB chief economist David Crowe, referring to the housing starts in the beginning of 2014. “We got a little bounce back in April, but [the first quarter] didn’t really recover from the low point at the beginning of the year.”

However, that as changed in the second and third quarter, when the number of housing starts for were above last year’s. The new NAHB forecast projects there will be 991,000 total housing starts in 2014, up 6.6 percent from 930,000 units last year.

The single-family housing market is especially expected to do well, as the forecast has it up 2.5 percent this year to 637,000 units, increasing an additional 26 percent next year to 802,000 and reaching 1.1 million in 2016.

Turning to the general economy, Crowe said, “We’ve had a nice, solid 3.5 percent GDP growth for the third quarter. We are going to see some continued modest growth in that same way.” He explained that while the U.S. is seeing better growth, the country is also seeing more consistent growth, which Crowe believes is more important.

It was also reported that employment levels have finally reached—and eclipsed—the peak levels of 2008, when 138 million people were employed. Currently, 139 million people are employed, though Crowe said those numbers are worse than 2008 ratio-wise.

“We have a long way to go because more people have entered the work force. We won’t be back on our long-term path until 2016,” he said.

But the growing number of employed citizens has had a positive impact on the housing market. Crowe used North Dakota as an example. According to the Washington Post, the state has had the lowest unemployment rate in the nation for 69 months straight, thanks to its oil boom. According to data from the St. Louis Federal Reserve, housing starts as measured by issued building permits for single family homes has set a new record for the state, beating the previous record set last year by more than 50 percent.

Crowe expects this trend to spread nationally as unemployment rates continue to drop.

Crowe says that rising wages should reverse the trend of millennials not purchasing homes.

Crowe says that rising wages should reverse the trend of millennials not purchasing homes.

It wasn’t all good news, though.

“First time home buyers ages 25-34 have not been participating in the market as they have in the past,” Crowe said. “The [number of new homes purchased] is also smaller.”

According to Crowe, that can be explained by home sellers not purchasing new homes after moving.

“In a typical period, almost half of the sellers of existing homes to first time homebuyers turn around and buy a new home. That ratio is cut in half now. We only have a 20 percent domino effect due to the fact that they’re buying ‘empty’ homes,” such as foreclosed homes, Crowe said.

As for millennials not purchasing homes, Crowe expects that will soon change.

“If we look at the most recent period, we see a positive change in income. This young age group is beginning to turn around its economic situation which will cause them to enter the homeowner arena soon,” he said.

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