Yesterday, NAHB hosted its Fall Construction Forecast Webinar (CFW) featuring three renowned industry experts. NAHB Chief Economist David Crowe was joined by Mark Zandi, Chief Economist at Moody’s Analytics, and NAHB Senior Economist Robert Denk to present views on the outlook for the US economy and the housing market more specifically.
Here are the major points from today’s presentation:
Mark Zandi expressed optimism about the growth of national output (GDP). He expected net growth of about 1.5% in 2013, around 3% in 2014, and about 4% in 2015. His reasons for optimism were based on a fading of fiscal drag on economic growth (i.e. payroll tax increase, sequester, etc.), improved conditions in the private economy (profitability at private corporations, stability in the banking sector, and household de-leveraging), and an expectation that housing supply will not meet demand. However, he noted that there are significant headwinds which could offset, in whole or in part, the improved situation. These include high level of perceived political uncertainty, a lack of hiring by new businesses, and tight mortgage credit. In addition, the Federal Reserve’s ability to shrink its balance sheet in a manner benign to the economy is not fully certain.
David Crowe, Chief Economist at NAHB, noted that economic growth is expected to accelerate over the coming years and recent growth has reflected improvement in the housing market. At the same time, employment is rising. Although mortgage rates have risen in recent months they remain below historic levels. In addition, he noted that both household balance sheets and overall consumer confidence have improved. Consequently, consumers have increased their purchases of durable goods such as cars and furniture, and have indicated a willingness to purchase a new home. The housing recovery is also supported by rising household formations and rising population in prime household formation years. However, the optimism for a continued recovery in housing may be siphoned by tight mortgage credit conditions, high labor costs faced by builders, a shortage of lots, elevated materials costs, and lower appraisals.
Robert Denk, Senior Economist at NAHB, was also sanguine about the prospects for a continued recovery in housing, but noted that its pace will be uneven in states around the country. For example, single-family housing starts are expected to reach 93% of “normal” by the end of 2015. However, states that did not depart as far from normal (North Dakota and Wyoming) during the housing bust are further along the path of recovery then states where housing starts virtually collapsed (Nevada and Michigan). In addition, eliminating the foreclosure inventory, a key component of the housing recovery, is more difficult in states that have a judicial process in place to govern foreclosures. Finally, as the recovery continues, the path to normality will begin to reflect the underlying economies of each state and not solely the boom-bust cycle of the housing sector.