Econ Focus – Housing’s Best Year in A Decade

ECONOMIC FOCUS

Freddie Mac’s predictions for housing in 2016:

Housing Supply Increases

There’s good news in the housing construction data. Multifamily housing starts have been solid, running above 300,000 for the past three years. But without single-family construction increasing it’s going to be hard to meet housing demand. In February 2016 single-family housing starts were at a seasonally-adjusted annual rate of 822,000, a substantial year-over-over percent increase, but still well below what we’ll need to meet long-run housing demand.

The recovery in single-family housing starts has been long (and tortured) despite optimism by homebuilders about the direction of the new home market. The NAHB/Wells Fargo Housing Market Index (HMI) tracks homebuilder sentiment. A reading above 50 indicates that on net respondents maintain a positive outlook about the new home market. The HMI for March 2016 was 58, marking the 21st consecutive month above 50. However, despite the optimistic sentiment, homebuilding activity has not followed suit. Historically the HMI and 1-unit housing starts have tracked each other closely. They still do, but the relationship has changed. If the historic relationship between sentiment and starts from 1985 to 2009 held, then single-family starts would be nearly 50 percent higher than where they are today.

One reason homebuilders have not ramped up home construction to match sentiment is a dearth of available labor. Recent analysis by the NAHB of the Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS) pointed out that unfilled job openings for construction workers in January 2016 were the highest since July of 2007. The lack of skilled labor is one key factor holding back housing starts.

Nevertheless, housing starts are trending higher, which will bring more badly-needed new supply onto the market. We’re forecasting that combined multifamily and single-family housing starts will increase 200,000 units to 1.3 million in 2016.

Next issue will conclude with Housing Prices Rising.

This issue of Economic Focus can be viewed, here.

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