A firming economy, solid job growth, rising consumer confidence, higher household formations and pent-up demand are helping to bring buyers back into the marketplace, and these factors will bode well for housing in 2016, according to economists speaking at the National Association of Home Builders (NAHB) International Builders' Show in Las Vegas last week.
"There are a number of positive indicators that provide solid evidence this will be a good year for housing and the economy," said NAHB Chief Economist David Crowe.
Private sector job growth has been averaging 240,000 per month over the past two years. GDP growth is expected to climb slightly above last year's level and consumer confidence is nearly back to its pre-recession peak, Crowe noted.
Builders report their top concerns in 2016 include the cost and availability of developed lots and labor, federal environmental regulations and policies that are making it more expensive and difficult to build homes, and building materials prices. Overall, though, "builder sentiment is more positive than negative," he said.
NAHB is forecasting 1.26 million total housing starts in 2016, up 13.4 percent from a projected 1.11 million starts in 2015. Single-family production is expected to reach 840,000 units this year, an 18 percent increase from a projected tally of 711,000 units in 2015.
Delving below the national numbers, David Berson, chief economist at Nationwide Insurance, said that most regional housing markets look healthy. Labor market conditions, a key driver of housing demand, are strong in many metropolitan statistical areas (MSAs) - supporting faster household formations and boosting local housing activity through rising incomes. These factors indicate that most of the 400 local housing markets "should see sustained growth in the coming year," Berson said.
With the unemployment rate declining in 90 percent of the MSAs over the past year, Berson said that the housing fundamentals are the strongest in over a decade, a trend supported by the labor market, demographics and consumer preference to own.
However, Berson noted that many MSAs with strong ties to energy exploration and production in states including Louisiana, Texas, Wyoming and South Dakota are expected to see limited housing expansion in the near term, as low oil prices are reducing employment.
Berson shook off worries about stock market volatilty, saying that the stock market is not a great leading indicator of the economy. "Hopefully we'll get a nice recovery out of the stock market going forward," he said. "It's definitely not signaling an imminent downfall for the economy."
With 30-year fixed-rate mortgages running at or below 4 percent during the past year, CoreLogic economist Frank Nothaft said mortgage rates are expected to gradually rise one-quarter to one-half a percentage point this year up to 4.5 percent, going from "cheap to low."
Nothaft added that overall home sales will rise 4-5 percent in 2016, led by a 13 percent gain for new home sales, with sales volume and growth strongest in the South and West. "There is stronger growth in households, population and demand for new housing" in these regions, he said. In fact, the disparity between regions of the country will be a major story for housing this year. "Some markets are stagnant or declining while others will have double digit gains," he said.
Nationwide, home prices this year will increase about 4-5 percent above last year's level and are projected to reach the 2006 peak by mid-2017, Nothaft said.
Tight mortgage credit for consumers is expected to ease slowly this year, but remain relatively tight compared to 15-20 years ago.