While both single-family and multifamily housing starts anticipated to record double-digit gains over last year in 2013, there are factors that continue to hold back even more substantial growth as the recovery evolves, according to economists at the National Association of Home Builders.
Single-family housing starts are expected to reach 672,000 in 2013, according to NAHB, up 23% from the 534,000 starts recorded last year. Looking ahead, NAHB is forecasting single-family production to increase an additional 28% to 858,000 units in 2014.
It is anticipated multifamily starts will rise to 334,000 units in 2013, up 35% from last year’s 247,000 level. NAHB noted that his will bring production back to the baseline level that is needed to keep the supply in balance with demand. In 2014, multifamily starts are expected to rise an additional 5% to 349,000 units.
“The broadening housing expansion is evidenced by the NAHB/First American Improving Markets Index, which now lists 273 metros areas out of a universe of 361, or three-quarters of the metropolitan areas in the U.S.,” said NAHB Chief Economist David Crowe.
Crowe added that most of the recent surge is a result of home price appreciation in a majority of markets. In fact, the latest data shows a nearly 6% annual rate of home price appreciation nationwide.
Housing growth is outpacing overall economic growth, noted Crowe. In the fourth quarter of 2013, the residential fixed investment component of GDP was up 17.5% whereas total economic output only registered a 0.4% gain.
With housing demand gaining momentum, the need for building materials, developed lots and skilled workers will slowly begin to grow, although the process may take some time.
In the meantime, most homebuilders are feeling strapped by the rising costs of key components in building — concrete, softwood lumber and gypsum prices are all above 90% of their housing boom peak — which, in turn, is pushing up the cost of home construction faster than appraised value can follow, according to NAHB.
Consumer confidence and future housing demand continue to be dampened by ongoing difficulties in obtaining construction credit, tight mortgage lending rules and Washington’s uncertainty regarding the future of housing financial regulations and housing tax incentives.
Meanwhile, Maury Harris, managing director and chief economist for the Americas for UBS, takes a more bullish approach to the housing and economic recovery. The economist expects housing starts to total 1.1 million units this year (700,000 single-family and 400,000 multifamily) and 1.35 million units (900,000 single-family and 450,000 multifamily) in 2014.
“My view is that monetary policy is more important than fiscal policy,” Harris said, noting that about $85 billion in spending will be cut out of the economy this year due to the sequester. Meanwhile, the Federal Reserve’s monetary expansion policy is pumping $85 billion into the economy every month, he noted.
“As the Fed buys securities and pumps reserves into the banking system, this is easing lending standards and that will help job growth,” added Harris, who expects unemployment to drop to 7.5% at the end of this year and 6.7% at the end of 2014.
“The bottom line: we’re reasonably optimistic about the economy,” Harris said. “The public doesn’t sufficiently appreciate all the good that the Fed is doing.”