David Crowe

Chief Economist 


Washington, D.C.

Anje Jager/agencyrush.com David Crowe Chief Economist NAHB Washington, D.C. dcrowe@nahb.com

Final numbers for 2012 provide a reasonably bright hindsight picture. Housing starts were up 28 percent and the broad based recovery pushed two-thirds of metropolitan areas onto the January NAHB/First American Improving Markets Index. The NAHB expects a similar growth rate in 2013, which should bring the annual production rate above 1 million by year’s end. But starts still will be two-thirds of normal and many obstacles remain.

Underlying demographics call for 1.6 million to 1.8 million housing starts per year to satisfy household growth, second-home demand, replacement of damaged and obsolete homes, and to allow for vacancies. Plus, low household formations during the recession stored up additional demand waiting for the job market to improve. The NAHB long-term outlook foresees normal production totals returning by 2016.

But impediments will arise, and the NAHB asked builders to rank their past and future concerns in a recent survey. Builders’ top concern is building materials prices, listed by 76 percent of respondents as a significant problem. This is up from 46 percent who saw it as a significant problem in 2012. A leading reason behind this attitude is the fact that lumber, plywood, and sheet goods prices saw double-digit inflation in 2012.

Concern about the economic climate slipped to 69 percent in 2013, down slightly from 71 percent who saw it as a significant problem in 2012. The only other 2013 market issue that concerned a majority of the builders is the shortage of labor, cited by 51 percent of builders, up from 30 percent in 2012. As an indicator of labor’s rapid rise in importance, only 13 percent of builders cited labor as an issue at the end of 2011, and at that time 21 percent expected it to be an issue in 2012.

Policy issues dominate the rest of the concerns for the coming year. Gridlock in Washington, D.C., creating uncertainty among potential home buyers was checked by 70 percent of respondents, only slightly more than the level of concern cited in the past. Given the most recent Congressional brinkmanship and the remaining looming deadlines, builders appear justifiably concerned that fiscal uncertainly is a deterrent to home buying. In that same vein, 55 percent are concerned about limits to the mortgage interest deduction and other federal housing supports, up from 35 percent in 2012.

Several policy issues remain high on the list and have changed little in the degree of concern across surveys. Builders still are worried about consumers’ ability to get a mortgage and about regulation of financial institutions. The concerns are related. The Dodd-Frank legislation covered an enormous array of restrictions and procedures intended to avoid another financial meltdown. The law requires implementing rules but only a few have been issued—many are still in contention. Further safety nets from a new financial regulator, the Consumer Financial Protection Bureau, have added to the uncertainty over what mortgages can be made, what risks exist, what future costs or capital requirements may be imposed, and whether the federal government will continue its support of the secondary mortgage market. Mortgage lending also has become very concentrated in a few large originators. The collective result of overcompensating laws and a large amount of uncertain future rules have left the mortgage market more restrictive than it should be. The result means fewer home buyers and fewer home sales.

Appraisals also remain an issue although there may be some slight improvement. The share of builders expecting inaccurate appraisals to be a problem in 2013 fell to 59 percent this year. This number is down from the past two years from 68 percent who saw appraisals as a significant problem in 2012, and from 66 percent in 2011.

Policy and market obstacles always will be with us and some of them will diminish potential output, but the year ahead looks promising as the housing industry recovers from the worst collapse since the 1930s.