NAHB: Housing Recovery Could Soar in 2016

May 1st, 2015 by Editor

The housing market is on the rise—and will keep on rising, according to economists participating in the recent National Association of Home Builders (NAHB) 2015 Spring Construction Forecast Webinar.

Solid employment gains, attractive mortgage rates, a growing economy and pent-up demand will keep the market moving up into 2016.

“This should be a good year for housing, buoyed by sustained job growth, rising consumer confidence that is back to pre-recession levels and a gradual uptick in household formations,” said NAHB chief economist David Crowe. “We expect 2016 to be even better, due to a significant amount of pent-up demand and an economy that will be entering a period of reasonable strength and consistency.”

Over the past seven years, Crowe estimates that 7.4 million home sales were lost due to the slow recovery and uncertainty in the employment and housing markets. “While some of these sales will never take place, this does indicate how many sales were lost as fewer households decided to move,” he said. “We expect at least some of these to return in the form of new home sales as job and economic growth continue to firm.”

Millennials are expected to help jump-start the process. The share of first-time home buyers has averaged around 40 percent traditionally, but in the aftermath of the housing downturn it now stands at just under 30 percent. With the unemployment differential between young people and others shrinking, first-time buyers should boost the housing market, Crowe said.

Single-Family Sales are on the Rise

The NAHB Remodeling Market Index, which averages ratings of current remodeling activity with indicators of future activity, stands at 57 in the first quarter of 2015. It’s been at or above 50 most of the past two years. A reading above 50 indicates that more remodelers report market activity is higher (compared to the previous quarter) than report it is lower.

NAHB sees residential remodeling activity increasing 2.3 percent in 2015 and rising an additional 2.4 percent in 2016.

Single-family housing production should climb 9 percent in 2015 to 704,000 units and jump an additional 39 percent to 977,000 units in 2016.

On the multifamily side, production ran at 355,000 units last year, which is close to normal, and it’s expected to continue in that range or slightly higher through 2015 and 2016. “That sector has completely recovered,” said Crowe.

The Coast is the Most for Growth

Sam Khater, deputy chief economist at CoreLogic, said the volume of sales for new homes is weak, but pockets of strength exist.

“New home price growth is fastest in the coastal states and eight of the top 10 healthiest new sale markets are in the Carolinas and Texas,” said Khater.

Of the top 100 new-home-sale markets, Houston leads the pack at 2,000 sales per month, followed by Dallas and Atlanta. Both are running at about half that pace. In terms of volume, the Southern markets really stand out.

“Nashville and San Jose stand out as the fastest-growing markets, and Atlanta and San Antonio are the best large markets,” said Khater.

Only three new-sale markets are larger today than in 2000—Nashville, Oklahoma City and San Antonio.

At the other end of the spectrum, Chicago is really hurting – sales there are down 75 percent since 2000.

Energy-Rich Areas are Booming

NAHB Senior Economist Robert Denk said the housing recovery continues to vary by state and region.

“Housing demand is now being driven by population growth and employment and income growth,” said Denk. “We are reconnecting to underlying fundamentals. We really have turned the corner.”

The strongest housing markets are in top energy-producing states, including North Dakota, Texas, Oklahoma, Louisiana, Wyoming and Idaho.

“The recent decline in oil prices is not hurting housing,” said Denk. “We haven’t seen it yet. We still expect energy output to be higher at the end of this year than last year.”

However, trouble may be brewing for Houston. Khater noted that employment in the city fell by 25,000 in March, possibly because of the recent big drop in oil prices. “That’s huge,” he said. “That’s normally not seen outside of a recession.” So far, though, Khater says it hasn’t affected the city’s sizzling housing market.

Other states exhibiting strong employment and housing growth include North Carolina, South Carolina, Tennessee, Washington and Colorado.

Using the 2000-2003 period as a “healthy benchmark” when single-family starts averaged 1.34 million units each year, NAHB projects that single-family production, which bottomed out at about 27 percent of normal production in early 2009, will rise to 61 percent of normal by the fourth quarter of 2015 and climb to 81 percent of normal by the end of 2016.

Also according to the NAHB, 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.

“What we are seeing, no matter what bucket you are in, the numbers are getting better,” said Denk. “There’s a broader recovery all around.”

 

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  1. This is great news! This forecast is in line with what the recently-released AAMA market study predicts too, though that study is focused specifically on fenestration. Spring is looking great!

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