told attendees at the International Builders Show that the housing market
should continue to improve on an accelerating basis in 2013. But each cautioned that there are many
factors, especially on the federal government level, that could still derail
the recovery. The builders, meeting in
Las Vegas on Tuesday, heard from David Crowe, Chief Economist, National
Association of Home Builders (NAHB), David Berson, senior vice president and
chief economist at Nationwide Insurance and Frank Nothaft, chief economist at
Crowe said that
nearly every indicator of housing market strength, permits, prices, sales,
housing starts, and builder confidence, has been trending upwards in recent
months. He noted that home prices, which
are up nearly 6 percent on an annualized basis over the last 10 months, are
particularly important because they are a trigger for people to return to the
market "People feel comfortable if they buy a house that will appreciate, not
depreciate, in value," he said.
He pointed as well
to other positive indicators including low rates and strong affordability, rising
household formation and a general improvement in the economy. Housing is now
also contributing to rather than acting as a drag on the economy and increased
its share of economic growth to 12.8 percent in the fourth quarter of 2012.
Setting the 2000-2003 period as baseline benchmark for normal housing activity,
Crowe ticked off other positive indicators:
Residential remodeling has returned to
previously normal levels and activity is expected to increase 2.4 percent this
The hardest-hit market, single-family houses,
was running at 44 percent of normal production in the fourth quarter of 2012
but should rise to 52 percent of what is considered a typical market by the
fourth quarter of this year and 70 percent by the fourth quarter of 2014.
Single-family starts are anticipated to rise 22
percent from 535,000 last year to 650,000 in 2013 and to 844,000 units in 2014.
On the multifamily side, NAHB is anticipating
that starts will increase 22 percent from 246,000 units last year to 299,000 in
2013, and rise an additional 6 percent to 317,000 units in 2014.
cautioned that builders continue to face several challenges, including
stubbornly tight mortgage lending conditions, inaccurate appraisals, rising
materials prices and a declining inventory of buildable lots. He also cited the potential that the continuing
gridlock in Washington over the debt ceiling, sequestration, and the budget
along with calls by some policymakers for major changes to the mortgage
interest deduction, could negatively impact consumer confidence and future
Berson echoed these
concerns and said it is still too soon to completely rule out the chance that a
policy stalemate will lead to an economic downturn. However, he said a more likely scenario is
that the Administration and congressional Republicans will likely reach some
type of agreement that addresses the multiple pending fiscal deadlines.
He told the builders he expects GDP growth of 2 to 2.5 percent this year, with
slower first quarter growth in response to the unresolved federal government spending
issues before the economy picks up modestly as the year progresses. However, if the full spending sequester is
triggered it would cut more than $100 billion in defense and non-defense spending
which could reduce 2013 growth to 1 to 2 percent.
If a relatively positive outcome occurs on the spending debates in Washington,
Berson said this will pave the way for the housing and auto industries to lead
the economy in 2013. Low mortgage rates, steady job growth, stronger household
formations and widespread house price gains over the past year are all positive
for home sales; yet tight mortgage credit is limiting opportunities for creditworthy
borrowers. "The problem is mortgage
lending standards are way too tight," he said.
"If we were at a scale of nine or 10 in 2005-2006, we are at a two
today. We want to be around a five."
Berson also noted that several federal agencies will be releasing final
rules later this year on a national qualified residential mortgage standard
that could further restrict mortgage lending.
Nothaft said that those buyers who are able to access credit will find home
loans at the lowest rates in 65 years.
He called the declining rates an important stimulant driving housing
demand and projected that that 30-year, fixed-rate mortgages will stay below 4
percent through the end of 2013.
The refinance boom for single-family homes associated with low mortgage rates
is expected to continue this year but gradually taper down. While overall
mortgage originations are forecast to fall 15 percent in 2013, Nothaft said
that home purchase originations will be trending higher and home sales will rise
a projected 8 percent this year.
Prices rose in 42 states between September 2011 and September 2012 Nothaft said,
and prices increased nationwide by 4 percent.
They are projected to increase 2 to 3 percent in 2013 and with the
oversupply of vacant homes at their lowest level in a decade, this will further
ease downward price pressure.
Rental vacancy declines have occurred in most markets since 2010 and U.S.
apartment values are up about 8 percent over the past year. This has led to an
increase in rental rates, but rents still remain relatively low adjusted for
inflation according to Nothaft.
Nothaft forecast 930,000 housing starts for 2013 and Berson said starts could
hit 980,000 this year. NAHB forecasts 949,000 total housing starts in 2013, up
21.5 percent from 781,000 units last year.