Prudent companies are not banking on a magical bounce-back recovery, and many builders and suppliers to the industry are well on their way in planning for 2012. Hanley Wood Market Intelligence is forecasting growth ahead, but we expect the recovery to be gradual, varied by market, and favoring multifamily for the next two years. Our forecast calls for 2011 to end with 580,000 total housing starts, or a decline of 1 percent year-over-year. We expect 2012 to end with 740,000 total housing starts, an increase of 28 percent—not exactly a return to the boom years but a healthy increase nonetheless.

Some consider this forecast pessimistic even though it calls for double-digit growth. But there are several fundamental reasons to be conservative despite growing evidence that we have hit bottom. Foreclosures are still elevated, and the negative pricing impact of bank sales of foreclosed homes is still depressing normal demand. Household formation remains muted, but even when it improves, growth will likely favor renting over owning due to job loss fears. Finally, economic conditions are less than stellar, pointing to continued slow growth for the overall economy. It’s a lot like a dysfunctional relationship—the economy is not helping housing, and housing is not helping the economy.

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