Housing starts have the potential to spike to 1.16 million by December, up 57% from July, according to Nancy Lazar, vice chairman and co-founder of International Strategy and Investment (ISI).
Low interest rates, high rents, low inventories of existing homes, and affordable prices for new homes will spike demand for new homes, said Lazar, whose track record for predicting housing starts has closely tracked actual starts. She has also been ranked No. 2 among economists by Institutional Investor for the past three years.
"With no constraints on inputs, that is where we would be at the end of the year," said ISI home building analyst Stephen East. But, while the demand will be there for that many new homes, chances are good that home builders won’t be able to start that many, he said. Shortages in construction workers, whose ranks shrank during the long recession, and land ready for construction, are likely to thwart housing start potential, keeping them at a more subdued annual rate of 850,000 by December, a 15% increase from July, he said.
"Home builders won’t be able to build that many [1.16 million starts]," East said. "I’ve talked to two of the largest builders and they agree and say it will be very difficult to support something like that, that there will be no way they can support it."
Building product providers, too, whose supply lines have been dramatically impacted by the recession, are not likely to be able to produce materials quick enough, East adds. "We are starting to hear more about building product delays."
But by late next year, builders’ capacity to deliver homes should come closer to matching demand, which is expected to continue to rise, absent any economic catastrophes. ISI is predicting an annual start rate of 1.2 million by December 2013.
Before then, however, the 2013 spring selling season could face some challenges, East said. Builders are still likely to be working to ramp up their employee counts and find lots ready for construction. And then there are larger forces that could put a damper on demand. Specifically, a global economic slowdown could impact home start rates and by then, with the presidential election over, Congress will be back at work figuring out what to do about expiring federal tax cuts. If the tax cuts expire, the country’s GDP will be impacted, East said.
Teresa Burney is a senior editor for Builder magazine.