While he anticipates that the current
government shutdown will be short-lived, Moody Analytics Chief Economist Mark
Zandi said yesterday that "If policymakers can't get it together by Oct. 17,
we're toast, and I think we are going into recession." Zandi made the remark during the National
Association of Home Builders (NAHB)'s Fall Construction Forecast Webinar.
The rest of Zandi's remarks and those of
his co-presenters were decidedly more upbeat.
Zandi said that the fiscal drag on the economy resulting from government
spending cuts and tax increases should continue to fade in the coming years. The drag will shave 1.5 percent off of GDP
growth this year, about half that next year and should disappear by 2016.
He also noted that the "private economy
has done a marvelous job of reducing leverage and getting their balance sheets
in order. American companies are in very good shape and they will do well going
forward, with continued strong export growth."
Finally, Zandi said that
demographics make a compelling argument for a strengthening housing market. The supply of newly built housing is around
1.7 million units and with current production of around 950,000 units. "We've already made a lot of progress in
working off excess inventory. We won't get housing construction up to 1.7
million quickly. The big problem in the next five years won't be too much
housing, but too little housing."
NAHB Chief Economist David Crowe said that housing has been a GDP plus, growing
at two, three, and four times the rate of the rest of the economy over recent
quarters. Tight inventories,
double-digit price increases, and gradual gains in employment have spurred the
housing rebound. Crowe said that prices
will moderate in the next few years as additional inventory comes on line and
investors disappear along with the bargains.
But household formation, delayed during the downturn, is poised to
rebound and polls indicate consumer homebuying sentiment is running high.
However, Crowe cited several headwinds
that are impeding the recovery. These
include today's tighter credit conditions and the labor shortages and rising
materials costs faced by builders. Inaccurate appraisals are also hurting home
sales, he said.
NAHB is forecasting 924,000 total housing starts in 2013, up 18 percent from
783,000 units last year. Single-family production is expected to rise 17
percent this year to 629,000 units, jump an additional 31 percent next year to
826,000 and surpass the 1 million mark in 2015.
Multifamily starts will increase 20 percent in 2013 to 296,000 units and
rise an additional 10 percent to 326,000, which Crowe called a normal level of
multifamily production. Residential remodeling
is back to levels of the early 2000s and should register a modest gain this
year over 2012.
Robert Denk, NAHB's assistant vice president for forecasting and analysis, pointed
out that the recession and the recovery are both more local in character than
national. Housing nationwide bottomed
out at an average of 27 percent of normal production in early 2009 but in
states where production had soared to unsustainable levels during the boom
years -- California, Nevada, Arizona and Florida -- bottomed out at 10 percent
to 20 percent of normal when the housing bubble burst. Other states which did not have a huge
production run up during the boom declined to 50 percent of normal production.
"We've now gotten past the point where we are digging out of holes and
repairing the carnage of the housing markets," said Denk. "It's no
longer about the boom and the bust. Now it's about the underlying [state and
regional] economies and how that is supporting the housing recovery. That's why the bubble states are no longer in
the bottom tier and have moved ahead of the industrial Midwest."
The gradual and steady housing recovery now underway across the land will bring
nationwide housing starts to 71 percent of normal by the fourth quarter of next
year and 93 percent of normal by the end of 2015, Denk said. Leading the way will be oil and gas producing
states Texas, Oklahoma, North Dakota, Louisiana, Wyoming and Montana; and Iowa,
supported by agricultural commodities.
In another way of looking at the long road back to normal, by the end of 2015
the top 20 percent of states will be back to normal production levels, compared
to the bottom 20 percent, which will still be below 84 percent.