February 4, 2016

First Look at the National 2016 Housing Outlook

Our first guest blogger for the new year, and one I am honored to have on Association Maximization,  is  Robert D. Dietz, Ph.D. Dr. Dietz is the incoming Chief Economist for NAHB, where his responsibilities include housing market analysis, residential construction industry forecasting and surveys, and housing policy research. Dr. Dietz has published academic research and testified before Congress on the private and social benefits of home-ownership, federal tax expenditure estimation, and other housing and tax issues. Prior to joining NAHB in 2005, Robert worked as an economist for the Congressional Joint Committee on Taxation and served as the committee's housing and real estate expert. He is a native of Dayton, Ohio and earned a Ph.D. in Economics from the Ohio State University in 2003.

Dr. Dietz, the time is now yours...

Expansion for the Year Ahead

Robert D. Dietz, Ph.D
After solid growth in 2015, ongoing job creation, pent-up housing demand and improving household formation point to gains in 2016 for all segments of the residential construction industry.

Despite the limited recovery that has occurred since the end of the Great Recession, single-family production remains about half of normal conditions given population growth and the need to replace older housing. And while growth is expected to remain modest with occasional periods of volatility, 2016 should be the first year in which the growth rate for single-family construction exceeds multifamily, which has up to this point led way in terms of the recovery in home building.

NAHB Economics is forecasting a growth rate of more than 15% for single-family construction in 2016, after a pickup of 10% for 2015. Jobs gains averaging about 240,000 a month, unemployment hovering around 5%, and healthy builder confidence all point to expansion for single-family construction.

Multifamily starts should expand a smaller, yet still positive, 2% in 2016, after growth of 11% for the past year. The gains for apartment construction will be smaller in 2016 in part due to the increasing supply of units under development and some markets reaching a mature stage in this part of the development cycle. The remodeling industry should grow 3% in 2016 as the existing home resale market will be effectively flat under tight inventory conditions.

One issue to keep an eye on in 2016 is monetary policy. For the first time in years, the Federal Reserve’s monetary policy committee raised its target for the short-term federal funds rate. Despite global economic turbulence and early stock market losses, most analysts expect future rate hikes in 2016 as monetary policy moves away from recession era targets of effectively zero interest rates. While short-term rates should rise, the impact on mortgage interest rates is expected to be manageable. For example, NAHB is forecasting an average 30 year fixed mortgage interest rate of 4.4% in 2016.

While demand side conditions will remain positive, an ongoing challenge for the home building industry will remain in the form of supply-side headwinds. Among these challenges are the three L’s: lots, lending and labor. A shortage in building lots is constraining construction activity in some markets. Tight lending conditions for buyers and builders has also had impacts, particularly entry-level buyers. A dearth of first-time buyers is both a short-term and medium-term (future move-up buyers) for builders.

The top supply side challenge for building will be the same in 2016 as it was in 2015: access to labor. The unfilled jobs rate for the overall construction sector has been rising in recent years, as tight hiring conditions are now affecting other industries. This issue has the possibility of raising average construction time and cost of housing.

Despite these headwinds, 2016 promises to be another year of growth for home building. Ongoing job growth and rebuilding of the industry’s infrastructure will offer expansion for all segments of the residential construction industry.

Submitted by Michael Kurpiel, CGA, CGP

PS: If you have any questions for Dr. Dietz, please click on my email embedded in my name above and I will forward to him. Or, simply go to nahb.org and contact Dr. Dietz there.

1 comment:

Kim Hefner said...

Thank you Dr. Dietz for your forecast for the upcoming year. As an associate who is also a builder member, I can tell you that LABOR is our #1 concern (everything else is a distant 2nd...) Hopefully we can assure young men and women that the construction industry is a GREAT place to be...we need them and we need to keep working with schools, parents, etc. to get the word out.

Our sales to date in 2016 are already ahead of last year, so bring on the sunshine!