Get Ready to Corner New-Home Market in 2015

November 3, 2014

Single-family housing production is poised to surge in 2015, as the economy picks up and a rise in household formations mixed with low mortgage rates unleash pent-up demand in the sector, according to economists speaking during the National Association of Home Builders’ 2014 Fall Construction Forecast Webinar.

“Single-family builders are feeling good. They are not overly confident, but confident enough to keep moving forward," says NAHB Chief Economist David Crowe. The single-family sector is expected to finish out the year stronger than the beginning of 2014, which will set the stage for a much more active 2015.

"This is mostly due to significant pent-up demand and steady job and economic growth that will allow trade-up buyers who have delayed home purchases due to job insecurity to enter the marketplace," Crowe says.

NAHB is forecasting 991,000 total housing starts in 2014, up 6.6 percent from 930,000 units in 2013. Single-family starts are expected to rise 2.5 percent this year and increase an additional 26 percent next year to 802,000. Single-family production is expected to reach the 1.1 million mark in 2016.

The multifamily market is also expected to stay strong with a continued growth in renters. The multifamily sector is expected to rise 15 percent in 2014 to 356,000 units, and hold mostly steady into next year.

The pent-up demand for housing will likely come to a head next year, says Mark Zandi, chief economist at Moody’s Analytics.

"The reason is that job growth is quite strong," says Zandi. "Currently, we are creating about 225,000 jobs per month, or 2.75 million per year. That is double the pace necessary to reduce unemployment and under employment, which augers very, very well for housing demand and the housing market more broadly."

By the end of 2017, Zandi predicts mortgage rates to rise from current averages of about 4 percent to about 6 percent.

"The housing market will be fine because of better employment, higher wages and solid economic growth, which will trump the effect of higher mortgage rates," Zandi says.

Still, housing markets’ performance will vary widely from state to state. 

"We are getting back to the point where economic conditions are dictating the strength of local housing markets," says Robert Denk, NAHB’s assistant vice president for forecasting and analysis. "It is very clear that those states with higher levels of payroll employment or labor market recovery are associated with healthier housing markets."

For example, housing leaders will likely be strong economy and energy-producing states like North Dakota, Texas, Louisiana, Montana, and Wyoming that are seeing big job growth as well as farm belt states, such as Iowa, that are seeing a boom in agricultural commodities, economists note. 

Source: National Association of Home Builders