HVAC Breaking News

April 28, 2014: Housing and Economy Continue on Upward Path, Say Economists

The Economy Is Expected to Respond as Employment Continues to Grow

WASHINGTON — A growing economy, pent-up demand, competitive mortgage rates, and affordable home prices will keep housing on an upward trajectory through 2015. However, several obstacles including tight consumer credit, shortages of lots and labor, and rising materials prices are hindering a more robust recovery, according to economists who participated in the National Association of Home Builders (NAHB) 2014 Spring Construction Forecast Webinar.

“Housing needs an improved economy,” said David Crowe, NAHB chief economist, adding that the economy is expected to respond as employment continues to grow and the unemployment rate slowly recedes from 6.7 percent in the first quarter of this year to 6.2 percent by the fourth quarter of 2015.

Consumer confidence is back to pre-recession levels and the purchase of motor vehicles and home furnishings are on the rise, indicating that consumers are increasingly willing to buy big ticket items such as houses.

Reflecting an increase in credit demand and economic growth, mortgage interest rates are projected to rise to 5 percent by the end of 2014 and 6 percent by the end of next year. Noting that these rates are still low by historical standards, Crowe said this would “not be a significant deterrent to expansion in the housing market.”

With new-home sales averaging just 8.8 percent of total home sales, barely half the historical average of 16.1 percent, Crowe observed that “this is another reason to believe that the new-home market will have to make up existing ground.”

However, he cautioned that builders continue to face a number of headwinds.

“Supply constraints related to lots and labor and rising lumber, gypsum, and OSB (oriented strand board) prices are hurting the ability of builders to meet demand,” he said. “Moreover, creditworthy borrowers, particularly younger families and first-time home buyers, are having difficulties in getting home loans.”

Remodeling, Sales, and Starts on the Rise

The NAHB Remodeling Index, which averages ratings of current remodeling activity with indicators of future activity, stands at 53 in the first quarter of 2014 and has been above 50 for six of the past seven quarters. A reading above 50 indicates that more remodelers report market activity is higher (compared to the prior quarter) than report it is lower.

NAHB is forecasting that residential remodeling will post a 3.8 percent increase in 2014 over last year and rise an additional 2.4 percent in 2015.

New-home sales are expected to climb 29 percent from 431,000 in 2013 to 557,000 this year.

Single-family housing production is projected to increase 22 percent from 621,000 last year to 760,000 in 2014 and surge an additional 55 percent to 1.18 million units in 2015.

On the multifamily side, production is expected to rise 8 percent from 308,000 in 2013 to 331,000 this year, reaching what is considered a normal level of production.

Banks Awash in Cash

Agreeing that the economy is on an upward trajectory, Maury Harris, managing director and chief U.S. economist at UBS, said that financial lending institutions are sitting on a mountain of cash.

“Banks have over $2 trillion of excess reserves. That’s with a ‘t,’” he said. “Banks would like to put that money to work and increase lending, which will help the economy.”

In the aftermath of the Great Recession, Harris said that normal household formations have fallen short by about 2.5 million as graduating college students were forced to move back in with their parents and young adults were doubling up in apartments.

“As unemployment comes down and credit availability eases, millennials (the 25-34 age group) will feel better about their economic circumstances,” said Harris. “I think we will see the shared household rate come down, less doubling up, and a pickup in household formations.”

Harris is forecasting 1.15 million housing starts this year (700,000 single-family and 450,000 multifamily) and 1.35 million next year (900,000 single-family and 450,000 multifamily).

A Gradual Climb to Normal

Looking at the state statistics behind the national numbers, Robert Denk, NAHB’s assistant vice president for forecasting and analysis, cited a range of differences among the states in the amount of distress suffered during the recession and the progress that is being made in recovering.

Housing production nationwide bottomed out at an average of 27 percent in early 2009 and reached 45 percent in the first quarter of 2014.

In the worst hit states, housing fell to 10 to 15 percent of normal production while production only fell by half in other states with a better underlying economy.

“The hardest hit states were the bubble states — Arizona, Florida, California, and Nevada — along with the industrial Midwest, which struggles with challenges in the auto industry and a declining manufacturing sector,” said Denk.

Where individual states stand now has a lot to do with how far they fell when the Great Recession hit, Denk noted.

Fueled by a booming energy sector that is producing solid job and economic growth, Texas, Louisiana, Oklahoma, Wyoming, North Dakota, and Montana are at the forefront of the housing recovery, with North Dakota now the first state to surpass its normal level of housing production.

On a national basis, single-family housing starts are projected to get back to 70 percent of normal production by the end of this year and 93 percent of normal by the end of 2015, Denk said.

For more information, visit www.nahb.com.

Publication date: 4/28/2014

Want more HVAC industry news and information? Join The NEWS on Facebook, Twitter, and LinkedIn today!

Did you enjoy this article? Click here to subscribe to The NEWS Magazine

You must login or register in order to post a comment.

Multimedia

Videos

Image Galleries

2014 ACI Home Performance Conference

The 2014 ACI National Home Performance Conference & Trade Show was held in Detroit.

Podcasts

NEWSMakers: Michael Willburn

Michael Willburn, president, Infloor Heating Systems, joins the program to discuss his company, radiant heating, industry trends, and whether contractors are becoming more interested in radiant heating. Posted on July 11.

More Podcasts

ACHRNEWS

NEWS 07-21-14 cover

2014 July 21

Check out the weekly edition of The NEWS today!

Table Of Contents Subscribe

R-22 PHASEOUT POLL

Some in the industry are calling for the EPA to halt production of R-22 as of 2015. What do you think?
View Results Poll Archive

HVACR INDUSTRY STORE

plumbing-hvac.gif
2014 National Plumbing & HVAC Estimator

Every plumbing and HVAC estimator can use the cost estimates in this practical manual!

More Products

Clear Seas Research

 

Clear Seas ResearchWith access to over one million professionals and more than 60 industry-specific publications, Clear Seas Research offers relevant insights from those who know your industry best. Let us customize a market research solution that exceeds your marketing goals.

DON'T MISS A THING

Magazine image
 
Register today for complete access to ACHRNews.com. Get full access to the latest features, Extra Edition, and more.

STAY CONNECTED

facebook icontwitter iconyoutube iconLinkedIn i con