2013's Housing & Economic Outlook

David Crowe, chief economist at NAHB said he expects to see 949,000 total housing starts in 2013, of which 299,000 will be multifamily units.
Courtesy of Larry Shield

Where will the economy go in 2013? This session at the National Association of Home Builders' Show in Las Vegas on Jan. 22 focused on the state of the nation's economy and its impact on housing. Nationally-known economists discussed the outlook for employment, prices, housing starts (both single-family and multifamily) and remodeling.

Speakers analyzed the strength of the housing sector, incorporating findings from NAHB's surveys and models. They analyzed the credit markets and the impact on builders and buyers, as well as market strengths by regions.

"The real key is how many households get formed," said Frank Nothaft, chief economist and vice president at Freddie Mac. "Right now, we're under where we should be and there's some pent-up demand. It's picked up the last few years."

Nothaft said there's been a big reduction in rental vacancy rates. Some dents have been made in meeting the housing demands. The sooner the job market rebounds, the sooner the housing industry will get back on track. If housing numbers go up quickly, we'll see a quicker recovery to the economy.

Regional differences see fluctuations in the housing market, especially as people are migrating to the warmer portions of the country. Upper New England and the Midwest have had a tough time with unemployment and have seen their residents migrate to the Southeast and Florida. North Dakota is thriving with jobs due to its shale oil exploration. As the population increases, home prices will go up.

"For this year we expect to see about 980,000 housing starts, so we're close to the goal of a million," said Nothaft. "Inventory is so low right now. This is the strongest the housing market has been since 2007, and we're projecting to be up 400,000 units in 2013."

In regards to the low Federal interest rates on loans, Nothaft said he expects the rates to remain low, at least until unemployment subsides to 6.5 percent. Unemployment is currently 7.8 percent with inflation running at below 2 percent. He said he expects the federal government to stop buying housing loans next year.

Nothaft said that mortgage interest rates of 3.5 percent are not sustainable, but will be at 6 percent if unemployment goes down to 5 or 6 percent. Factoring economic growth, job growth is much more important than lower mortgage rates.

"The overall growth in the economy will eventually push mortgage rates up," said David Crowe, chief economist at NAHB. "The median size of new homes is going up again. Right now only those with sufficient wealth can pass the test to qualify to buy homes."

David Berson, senior vice president and chief economist at Nationwide Insurance said the Echo Boomers, which are the children of the Baby Boomer generation, are just now starting to come into the 25-34 year old demographic and purchasing homes. Based on permits, starts and employment, more than two-thirds of metropolitan areas have been viewed by NAHB as having an improving housing market. This list has increased broader geographically.

"People are starting to form families and the outlook is very good for the long term," said Berson. "Look at new home prices and transaction prices. They're moving toward the higher end. Based on the house price index of repeat sales, the portal is smaller to buy."

As far as senior adult living communities, prices need to move up in order to develop, but the demographics are there, said Nothaft.

"The economy is still struggling," said Crowe. "We need to get to our capacity with employment. The housing industry is expanding a modest part. Developers need to have confidence in the demand for lots and also have access to capital. There's going to be some bargains to purchase in real estate."

During the Great Recession, manufacturers and building suppliers had to cut down on their production, said Crowe. Contractors got laid off or lost their jobs. Developers didn't have many opportunities to purchase land and build on it. It's going to take a while for these sectors to coincide to their previous levels and meet the current demands of the housing industry.

"There's still uncertainty in the market place and the final rules for qualifying mortgages," said Nothaft. "Once the criteria becomes more clear, lenders can take advantage of the flexibility. Congress has talked about getting out of the mortgage business and having them backed by private capital."