The housing sector is once again proving to be “The Little Engine That Could.”
“Housing is finally doing its job in leading the economy out of recession,” said
Actually, housing turned the corner a while back, Crowe said. “But the recovery is now a lot more solid and in a lot more places.” More than two-thirds of the nation’s 300-plus major housing markets are in recovery mode, he added.
For 2013, the NAHB economist now expects single-family housing starts to rise 23%, from 535,000 last year to 658,000 this year—up from a forecast of 650,000 just a month ago—and 30% in 2014 to 844,000.
The dip in February’s housing starts isn’t any cause for alarm, Crowe said, because the decline was all in the multifamily sector. “Single-family starts were dead even, virtually the same,” he said.
According to the Census Bureau, single-family starts in January were running at an adjusted annual rate of 613,000. That’s the strongest pace since July 2008. And permits, a leading indicator of future building activity, were up nearly 2% to a seasonally adjusted rate of 584,000 units.
That’s still way short of the 1.4 million starts the NAHB considers “normal.” But if the new home sector were to expand any faster, Crowe said, builders would run into supply and labor shortages that would drive prices too high, too fast.
Recreating the construction delivery infrastructure is “already an issue in the more robust markets,” he said, which is why building material prices have soared to the top of the list of builder concerns.
Prices for some key building materials already are up sharply, and labor is becoming a headache, too.
Gypsum prices rose 12% between December and January alone, and are now 27% above year-ago levels. The cost of softwood lumber was up 7% in January, and 25% from a year earlier. Together, according to the NAHB, gypsum and lumber account for roughly 20% of the cost to build a typical house.
Labor is “a rising problem” as well, says Crowe, who asks his members every month what they expect to be their biggest issues in the coming months. Labor has risen from 18th last year to eighth in the latest survey.
“Clearly,” the economist says, “some builders are having trouble finding labor and have to pay more for it.”
For now, housing, which normally accounts for about 3.5% of GDP, is adding a whopping 13% to growth. Sales were up significantly in January, and the inventory of unsold new houses dipped to its lowest level in eight years.
The NAHB economist told reporters at the group’s annual convention in Las Vegas in January that “a couple of things” happened last year that will provide a springboard for 2013—prices on a national basis have moved up “rather nicely” at about a 6% annual rate, and household formations finally started to blossom.
Crowe said that although national numbers are all but useless because all housing activity is local, a jump snags the media’s attention, which in turn, is gobbled up by consumers. And “the current recovery,” he said, “is now broad enough and of sufficient enough size to affect the national figures.”
More important, though, is the fact the news tends to trigger even more demand, and “that’s what’s been missing,” he added. “People feel more comfortable about appreciation. And while there may be a few hiccups here and there, we think appreciation will continue.”
Household formations dropped from 1.4 million a year during the housing boom to 500,000 at the bottom of the recession. But over the last four quarters, they’ve been running at about 850,000 on an annual basis, as young people in the 25- to 34-year-old age bracket move out of their parents’ basements or away from roommates to form their own households.
Though that age cohort has typically been the years people purchase their first home, the jump in household formations has largely been a stimulus for apartment construction, if only because many young people have been unable to save for a downpayment, their credit isn’t good enough to meet today’s rigid lending standards or they are underemployed.
“Many will eventually become homeowners,” the NAHB economist said, “but not until 2014 or 2015.”
