AFTER THE HOUSING MARKET'S PHENOMENAL performance in 2004, it's natural to wonder if the streak will continue as we move into the second half of the decade.
The NAHB anticipates that activity in our booming housing industry will hold up well in 2005, although it's going to be difficult to match last year's record-breaking pace in an environment where both short- and long-term interest rates promise to be higher.
The NAHB is projecting that total housing starts will drop about 4 percent in 2005, down moderately from more than 1.9 million starts last year. Sales of new single-family homes set records last year, and the fundamentals of the market will remain good in 2005, despite a higher interest-rate structure.
New single-family home sales are expected to decline a bit this year, to about 1.1 million units, but a healthy supply–demand balance at the beginning of the year will help limit the decline in new production.
On the multifamily side, production is expected to slip only modestly in 2005 as a solid condo market helps to counter softness in market conditions for rental housing.
Another aspect of the nation's housing markets—remodeling—is expected to post further growth in 2005. With the tremendous rise of home equity, which is now approaching $9 trillion nationwide, homeowner expenditures for additions and alterations should keep the residential remodeling industry growing with an annual volume in the $220 billion to $225 billion range.
Clearly, excellent financing conditions have been a key factor in the robust performance that we have seen in the housing market over the past two years. And even though long-term mortgage rates are expected to rise to about 6.75 percent by the end of this year, that is still well within the comfort range of most home buyers. Furthermore, a variety of adjustable-rate loans will continue to be available for prospective new-home purchasers. Improving economic conditions, particularly job and income growth, are an additional factor in housing's favor, and solid increases in house values will continue to buoy demand.
If there's a wild card in the housing forecast, it's high oil prices. While even the Wall Street geniuses can't predict energy costs with any certainty, it appears likely that oil prices will fall somewhat in 2005 after taking a bite out of economic output and consumer confidence in the short term.
Looking further into the future, housing should fare well in the next decade. New household formations and immigration will continue to be strong, and the NAHB expects demand for single-family and multifamily housing to average 1.8 million units annually through 2013.
In a nutshell, the nation's housing market is healthy and stable, and even though 2005 probably won't match 2004's record-setting pace, it should still be a very good year for housing and America's home builders.
President, NAHB, Washington, D.C.