Housing market builds stronger foundation, but cracks remain
The year 2012 brought a housing market with a stronger foundation, but David Crow, chief economist for the National Association of Home Builders, sees some cracks that could allay a robust recovery if they remain uncured.
Crow notes that real estate prices, home starts, new-home sales and builder confidence escalated somewhat in 2012. Yet, lending standards remain tight and constrictive, making it harder for homeowners to obtain loans.
Not to mention, U.S. lawmakers have failed to state clearly what will happen to the mortgage interest deduction – a tax benefit that remains on the chopping block despite it benefitting millions of homeowners with savings each year.
But, without these 'uncertain' impediments, the market remains strong, Crow suggested Thursday.
"We are transitioning from a very low demand level, where most people hold themselves out of the marketplace, to a case where supply will start being the problem," Crow added. "As we begin to build more homes to address that supply, the new home stock will be a much more important element of the recovery."
Crow says the NAHB/Wells Fargo Housing Market Index, which evaluates builder confidence in the single-family housing market, has been gaining for eight consecutive months and sits at an index level of 47.
A score of 50 or above suggests more builders view the market favorably.
Back in July, the confidence index maintained a score of 29, suggesting building confidence has edged up 21 notches in just nine months.
Crow believes the type of new demand needed to push a recovery already exists with household formations on the rise.
In the early 2000s, the U.S. was creating about 1.4 million new households each year, a number that collapsed to 500,000 homes annually during the downturn, according to NAHB.
Today, the nation is creating about 900,000 new households each year, creating more demand, Crow asserts.
Single-family starts for 2012 are expected to reach 534,000 units by year's end, a 23% increase from a year earlier. NAHB also is predicting a 21% gain in single-family, new home production next year, with 647,000 units anticipated.
In addition, NAHB estimates a 29% jump in housing starts next year, with 837,000 units projected.
Starts will continue their upward climb in 2014, posting a further 29% rise to 837,000 units, based on NAHB's analysis.