"The familiar saying that housing brings the economy out of recessions did not hold true this time around," according to David Crowe, Chief Economist for the National Association of Homebuilders (NAHB).  Crowe, writing in the current edition of RealtyTrac's Foreclosure News Report said that home building this time around did not take the well-worn path we have come to expect in an economic recovery.  Construction has moved up from the bottom, but that movement has not been "stellar."  Housing starts in 2013 were well under 1 million, an improvement from 2012 but the rate of increase has slowed to under 20 percent so expectations for 2014, Crowe says, are hesitant and somewhat pessimistic. 

The slower than normal recovery of the housing industry in his view occurred because the Great Recession had characteristics more like the Great Depression than those typical of other post-war recessions.  It was longer and deeper and in terms of housing was particularly severe.  Housing values slipped as much as a third nationally and much more in some areas, mortgage delinquencies were widespread as were foreclosures and while emergency programs and laws stemmed some of the worst, the damage has taken years to repair. 

Now the repairs have been made and "many of the disturbances that slowed the housing revival have been calmed," and consequently Crowe has a brighter take on 2014 than many in the field.  He sees a return in housing demand, fundamental housing market stability, and relatively solid economic growth combining to produce good growth in housing this year. 

Single-family construction will total 820,000 in 2014, a better than 30 percent improvement from 2013.  Multifamily construction, primarily of rental apartments, will total 326,000, an 8 percent growth rate but apartment construction growth will slow as the industry approaches sustainable levels in the 360,000 unit range.  He also sees new home sales topping 600,000 for the first time since 2006 as demand grows and builders can acquire the land, labor, and materials needed.

Crowe has this somewhat contrarian outlook because he sees a lot of factors that have been holding back growth changing.  First, households have improved their balance sheets.  They have saved more, reduced debt, seen home values improve and investments rise.  "From a planning standpoint, households behaved prudently but the more they saved, the less they spent and the recession worsened."  But net worth has risen by double digits the past year and this has provided comfort enabling households to consider consumer and durable commodity purchases while rising prices will enable formerly underwater homeowners to consider selling and moving to another home.  

The rapid rise in prices over the past couple of years has been driven by low supply and heavy demand especially at lower price points and both trends should cool in 2014 Crowe says.  Supplies will increase as more owners decide to sell.  But demand will both soften as investors pull away from the market and increase as households begin to form at more normal levels.  Household formation nearly collapsed during the recession, dropping from net growth of 1.4 million to one-half million a year.   NAHB estimates at least a two million back log of unformed households in addition to the normal 1.2 million flow of household formations over the next decade

Much of the dearth in formations was due to unemployment which was especially high among young adults who were forced to continue living with their parents.  Since 2011 unemployment rates for young adults have fallen to the same as level as the general population and their housing demand will continue to rise.

A more normal environment is also being signaled by indexes showing increased purchases of durable goods, consumer confidence, and sentiment.   "Home buyers have overcome many of their former fears of the housing market," Crowe says.

Mortgage rates will continue to rise as a probable shrinkage of federal involvement in mortgages will bring more expensive private money into the market.  But Crowe says the price of mortgage credit has not been as much of a hindrance as its lack of availability.   He calls underwriting standards unreasonably tight and says that uncertainty about future rules and the degree of government involvement helped keep thresholds high.  Some of the uncertainty about Dodd-Frank regulations has ended and "new leadership at the Fannie Mae and Freddie Mac regulator may signal some more reasonable policies," so mortgage lenders will shift resources from refinance to originating purchase mortgages as rates continue to rise.

Even with Crowe's optimistic outlook he believes the home building industry will end 2014 only at about two-thirds normal and the climb back to pre-recession normalcy will take at least two more years.  Even then some individual markets, such as those restructuring their economic base or where home prices and production had the largest fluctuations, will take longer to return to a normal level.  Their full recovery will be dictated by how far down construction fell and the health of fundamental economic underpinnings.