With rising home prices nationwide, housing recovery looks promising, though fiscal uncertainties may provide roadblocks in the months ahead, according to economists participating in last week’s National Association of Home Builders (NAHB) economic outlook webinar.
NAHB Chief Economist David Crowe cited a number of factors propelling the housing recovery forward, including pent-up household formations; rising consumer confidence; increasing builder confidence in remodeling, multifamily and single-family construction; growing rental demand; more than 100 metros currently on the NAHB/First American Improving Markets Index.
Though these factors provide hope for the market’s recovery, Crowe offered several cautionary factors that continue to hinder housing activity such as builders finding it difficult to obtain production credit, qualified buyers who are unable to obtain mortgage loans, inaccurate appraisals, outstanding mortgages that are at least 90 days past due or in foreclosure, and a limited inventory of developed lots in certain markets.
Much of the uneasiness surrounding the market’s recovery arises from tax reforms and regulations slated for 2013, including a “fiscal cliff” that will trigger mandatory budget cuts at the beginning of next year. Also contributing to marketplace uncertainty are pending Dodd-Frank regulations making financial institutions hesitant to lend since they do not yet know how these new rules will affect them.
All in all, NAHB is predicting a 21 percent increase in single-family starts this year to 528,000 units and a further 26 percent rise to 665,000 units in 2013. As for multi-family units, the NAHB expects a 26 percent increase this year to 224,000 units and a 6 percent climb in 2013 to 328,000 units.
Despite the looming uncertainties gripping the market, Crowe remains optimistic for growth.
“We’re seeing a more robust housing sector than many other parts of the economy,” he said. “One of the reasons is we have finally begun to see on a national scale that house prices are picking up again.”
Sharing similar feelings is Mark Zandi, chief economist for Moody’s Analytics, who predicts that GDP growth will land in the 2 percent range this year and next, and a doubling of that growth closer to 4 percent in 2014 and 2015.
“A big part of this optimism is the housing market,” said Zandi. “I expect 1.1 million total housing starts in 2013, 1.7 million to 1.8 million in 2014, and over 1.8 million in 2015.”
To back this statement, Zandi cited three crucial fiscal policy concerns, the first of which addresses the fiscal cliff and the proactivity of policymakers to ensure that the combination of pending tax increases and spending cuts do not throw the economy back into recession.
The second solution concerns a raising of the Treasury debt ceiling. By February or early March, the Treasury is expected to reach its debt ceiling. A failing to raise the ceiling would prevent the U.S. government to borrow to meet existing legal obligations, including the issuance of Social Security checks.
His last suggestion relies on achieving fiscal sustainability. More specifically, there needs to be a closer gap between the federal government’s expenditures as a percentage of GDP (24 percent) and its revenues (17 percent). “We need spending cuts and tax revenues to narrow future deficits,” Zandi concludes. “If we can’t do that, bad things will happen.”
Nationally, housing starts are projected to return to 55 percent of normal production by the end of 2013, and 70 percent by the end of 2014.
Written by Jason Oliva