NAHB is anticipating 333,000 multifamily starts in 2014, up 9 per cent from 306,000 last year.
Single-family home sales are projected to hit 584,000 this year, a 35.9 per cent increase above last year’s 430,000 sales. Strong demand for apartments will increase over the next several years, said panelists during a press conference at the NAHB International Builders’ Show (IBS) in Las Vegas. And while multifamily construction continues to be strong, NAHB does expect the speed to decrease as sustainable levels are reached in 2015 or 2016.
“The multifamily market has rebounded significantly from its trough in 2009 at 82,000 multifamily housing starts to 340,000 in 2013,” said NAHB Chief Economist David Crowe. “NAHB is forecasting 363,000 multifamily housing starts in 2015, which is above the previous longer term average of 340,000 as more young adults prefer renting.”
Otherwise, led by a resurgence in single-family production, housing will continue its climb toward higher ground in 2014, but builders are still confronting several challenges that could hinder the pace of the ongoing recovery, according to economists speaking at IBS.
“My single-family forecast for 2014 is pretty aggressive–822,000 starts which is likely 200,000 more than 2013,” said NAHB Chief Economist David Crowe. “There are five key points to the turnaround. Consumers are back, pent-up demand is emerging, there is a growing need for new construction, distressed sales are diminishing, and builders see it.”
US Housing Forecasts
The slow and steady housing recovery will bring nationwide housing starts to 71 per cent of normal by the fourth quarter of this year and 93 per cent of normal by the end of 2015, Crowe said. Viewing the recovery on a state level, by the end of 2015, the top 20 per cent of states will be back to normal production levels, compared to the bottom 20 per cent, which will still be below 84 per cent.
Consumer confidence has returned to pre-recession levels and household balance sheets are on the mend. Year-over-year household formations are on the rise and are now averaging 620,000 compared to just 500,000 during the housing downturn.
In the aftermath of the Great Recession, there is significant pent-up demand to form households and even to build homes, noted David Berson, senior vice president and chief economist at Nationwide Insurance.
“At least 3 million fewer households formed over the past five years than would normally have been expected,” he said, noting that during this period many college graduates were forced to double-up or move in with their parents.
Frank Nothaft, vice president and chief economist at Freddie Mac, said at IBS he expects that home sales and prices will each rise about 5 per cent in 2014 and that housing starts will post a 20 per cent gain. This year, he expects a big transition, as home purchase originations overtake the refinancing market.
“As we move into the 2014 home buying season, it will be a market dominated by home buying originations rather than refinance originations,” said Nothaft. “This will be the first time since 2000 that purchase originations will dominate the market.”
Others are warning that serious problems underlie this home-buying interest.
Home flipping — defined as when a home is purchased and subsequently sold again within six months – was a serious business in 2013, according to data from RealtyTrac January 31. Last year, 156,862 single-family homes were flipped across the US, a year-over-year increase of 16 per cent from 2012 and a whopping 114 per cent increase from 2011.
Home flips made up 4.6 per cent of all US home sales in last year, up from 4.2 per cent in 2012 and 2.6 per cent in 2011. Profits on a flip also jumped to an average of US$58,051 in gross profit, up from US$45,759 in 2012, RealtyTrac data showed.
The average gross profit for a home flip – the difference between the flipped price and the price the flipper purchased the property for – was US$58,081 for all U.S. homes flipped in 2013, up from an average gross profit of US$45,759 in 2012. The average gross profit for homes flipped in the fourth quarter was US$62,761, up from US$52,746 in the fourth quarter of 2012.
Although home flipping activity was up across all price ranges, home flips on properties worth US$400,000 or more saw the greatest increase in activity – 36 per cent year-over-year – according to blog Zero Hedge.
Elsewhere, the US housing recovery has been quite impressive on the surface, said Martin Pelletier in the Financial Post Monday. Existing home sales have reached pre-financial crisis levels, house foreclosures have fallen to near decade lows, and housing prices are up nearly 14 per cent from last year’s levels, posting their strongest gains since February 2006. The housing market contributes approximately 17 to 18 per cent of US GDP.
“Interestingly, all-cash purchases of single-family housing accounted for 42 per cent of all total sales in November 2013, according to data from RealtyTrac” detailed Pelletier. “But nearly 90 per cent of these cash purchases are from investors, not main street. We’ve read that investors have purchased more than one million homes in the past three years, focusing in on the foreclosed home market. Firms such as Blackstone Group LP have been buying up these homes in bulk, renting them out, securitizing them, getting a AAA rating and then selling them to yield-hungry investors.”
With the most contrarian of viewpoints, and using the latest data from RealtyTrac, James Quinn wrote in a scathing article for The Market Oracle Monday, “ In a normal [US] housing market 85 per cent of home sales would be between individuals using a mortgage, 10 per cent would be all-cash transactions, less than 5 per cent of sales would be distressed, and 40 per cent would be first time buyers. In this [current] warped market only 40 per cent of home sales are between individuals using a mortgage, 42 per cent are all cash transactions, 16 per cent are distressed sales, 5 per cent are flipped, and only 27 per cent are first time buyers.”