Growth Potential and Headwinds for New Home Construction examines factors influencing new home construction in the United States. While overall housing recovery is occurring, single-family home construction continues to lag due to relatively weak demand and supply constraints limiting inventory. On the demand side, rental housing leads as fewer millennials get married or buy first homes. Supply is restricted by shortages in labor, lots, and lending for builders. Material prices are also rising. Forecasts predict a continued recovery in multifamily building and a normalization of total housing starts by the second half of the decade as the population in prime household formation years increases.
LCAR Unit 14 - Real Estate Brokerage - 14th Edition Revised
Residential Issues And Trends Forum Robert Dietz, PhD NAHB
1. Growth Potential and Headwinds for
New Home Construction
Robert Dietz, Ph.D.
Vice President, Tax and Market Analysis
@dietz_econ www.eyeonhousing.org
NATIONAL ASSOCIATION OF REALTORS
RESIDENTIAL ECONOMIC ISSUES AND TRENDS FORUM
May 14, 2015
2. Home Construction (Single-Family) Continues to Lag
the Overall Housing Recovery
Why?
Demand is relatively weak
Rental continues to lead
Supply
Production constraints hold back inventory
9. Household Formations on the Rise?
Uptick in year-over-year change in households
Thousands
Avg: 1.4 million
(12% renters)
Avg: 0.5 million
(130% renters )
Avg: 0.7 million
(128% renters)
36. Population by Single-Year of Age
Rising population in prime household formation years
Millions
Born 1979 or later Born 1965-78 Born 1946-64 Born 1945 or earlier
38. Thank you to NAR and for your attendance
Questions?
Robert Dietz, Ph.D.
Vice President, Tax and Market Analysis
@dietz_econ www.eyeonhousing.org
Editor's Notes
Overall economic growth will continue to be positive, but weakly. 2012 growth came in at 2.2% for the year. The most likely outcome is slower but reasonably steady growth of 1.8% in 2013 before rising to 2.6% in 2014. The sequester and tax increases passed in early 2013 will have some slowing effects in the second and third quarter of 2013.
Source: Bureau of Economic Analysis, National Association of Home Builders
Overall economic growth will continue to be positive, but weakly. 2012 growth came in at 2.2% for the year. The most likely outcome is slower but reasonably steady growth of 1.8% in 2013 before rising to 2.6% in 2014. The sequester and tax increases passed in early 2013 will have some slowing effects in the second and third quarter of 2013.
Source: Bureau of Economic Analysis, National Association of Home Builders
Overall economic growth will continue to be positive, but weakly. 2012 growth came in at 2.2% for the year. The most likely outcome is slower but reasonably steady growth of 1.8% in 2013 before rising to 2.6% in 2014. The sequester and tax increases passed in early 2013 will have some slowing effects in the second and third quarter of 2013.
Source: Bureau of Economic Analysis, National Association of Home Builders
Overall economic growth will continue to be positive, but weakly. 2012 growth came in at 2.2% for the year. The most likely outcome is slower but reasonably steady growth of 1.8% in 2013 before rising to 2.6% in 2014. The sequester and tax increases passed in early 2013 will have some slowing effects in the second and third quarter of 2013.
Source: Bureau of Economic Analysis, National Association of Home Builders
Household formations have finally started to pick up, especially compared to the very low rates of net additions to the total number of households in 2007 through 2010. The fully normal rate of additions should be around 1.2 million per year, so the 860,000 recent average is moving in that direction. Many of these newly formed households are renters, but still represents more home building and eventually, many of those renters will become home owners as well as more homeowners trading up.
So economy is growing, jobs are growing….there’s pent-up demand…..what about the supply side. Growth – and building is growing – creates its own challenges. Let’s look at lots, labor, lending (and materials)….4th L????
Up about 17% for res ADC over last 4 qtrs.: (sf starts up 20% YOY)….
Of the three legs of home building, remodeling had the least collapse and has recovered to levels of early 2000s. The remodeler index has been at or above the tipping point of 50 for six of the last seven quarters.
Remodeling has improved as home owners decide to remain in place rather than move. The first half of 2013 is expected to be weak, but growth should pick back up by the second half of the year. And, as moving does return, remodeling will benefit from existing home buyers fixing their homes after a move.
Source: U.S. Census Bureau, NAHB Economic and Housing Forecast.
Multifamily sentiment has also passed the 50 tipping point for nine consecutive quarters and has demonstrated some predictive power to actual multifamily starts.
Multifamily has been a different story as rental demand picks up. 2011 was a banner year and 2012 followed closely with an almost identical increase in number of additional starts (64,000 and 65,000). The improvement continues because all of the added household formations are becoming renters. For a while, excess vacancies and conversion of foreclosures into rental satisfied that demand, but that cannot continue to more rental production is needed. Real rents have started to increase reflecting the increased demand and some return to a normal market. The sector will continue to grow but at lower rates.
Of the three legs of home building, remodeling has recovered the most and is back up to levels of early 2000s. The remodeler index has been at or above the tipping point of 50 for two out of the last three quarters.
Once home sales pick up, housing starts will follow. 2011 was the worst year since the early 1940s so there is a lot of room for improvement. 2012 and 2103 saw modest improvements. 2014 will temper that speed as consumers readjust to a slower growing economy.
5 to 6 million additional population over next 10 years