Housing Headed for Higher Ground in 2016

A firming economy, solid job growth, rising consumer confidence, higher household formations and pent-up demand are helping to bring buyers back into the marketplace, and these factors will bode well for housing in 2016, according to economists speaking at the National Association of Home Builders (NAHB) International Builders’ Show in Las Vegas.

“There are a number of positive indicators that provide solid evidence this will be a good year for housing and the economy,” said NAHB Chief Economist David Crowe.

Private sector job growth has been averaging 240,000 per month over the past two years. GDP growth is expected to climb slightly above last year’s level and consumer confidence is nearly back to its pre-recession peak, Crowe noted.

Builders report their top concerns in 2016 include the cost and availability of developed lots and labor, federal environmental regulations and policies that are making it more expensive and difficult to build homes, and building materials prices.

NAHB is forecasting 1.26 million total housing starts in 2016, up 13.4 percent from a projected 1.11 million starts in 2015.

Single-family production is expected to reach 840,000 units this year, an 18 percent increase from a projected tally of 711,000 units in 2015. Using the 2000-2003 period as a healthy benchmark when single-family starts averaged 1.34 million units on an annual basis, Crowe said. The ongoing housing recovery will see single-family starts steadily climb from 55 percent of normal production at the end of the third quarter of 2015 all the way up to 87 percent of normal by the end of 2017.

On the multifamily side, NAHB is anticipating 417,000 starts in 2016, up 5 percent from an expected total of 397,000 units last year.

Meanwhile, residential remodeling activity is expected to register a 1.1 percent gain this year over 2015.

Delving below the national numbers, David Berson, chief economist at Nationwide Insurance, said that most regional housing markets look healthy.

Labor market conditions, a key driver of housing demand, are strong in many metropolitan statistical areas (MSAs) – supporting faster household formations and boosting local housing activity through rising incomes. These factors indicate that most of the 400 local housing markets “should see sustained growth in the coming year,” Berson said.

With the unemployment rate declining in 90 percent of the MSAs over the past year, Berson said that the housing fundamentals are the strongest in over a decade, a trend supported by the labor market, demographics and consumer preference to own.

However, Berson noted that many MSAs with strong ties to energy exploration and production in states including Louisiana, Texas, Wyoming and South Dakota are expected to see limited housing expansion in the near term, as low oil prices are reducing employment.

Frank Nothaft, chief economist of CoreLogic, foresees solid fundamentals for housing in 2016.

With 30-year fixed-rate mortgages running at or below 4 percent during the past year, Nothaft called them “cheap.” He said mortgage rates are expected to gradually rise one-quarter to one-half a percentage point this year up to 4.5 percent, going from “cheap to low.”

Nothaft added that overall home sales will rise 4-5 percent in 2016, led by a 13 percent gain for new home sales, with sales volume and growth strongest in the South and West. “There is stronger growth in households, population and demand for new housing” in these regions, he said.

Nationwide home prices this year will increase about 4-5 percent above last year’s level and are projected to reach the 2006 peak by mid-2017, Nothaft said.

Tight mortgage credit for consumers is expected to ease slowly this year, but remain relatively tight compared to 15-20 years ago.

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