OUTLOOK ’13: US housing recovery to continue at slow, steady rate

21 December 2012 23:03  [Source: ICIS news]

HOUSTON (ICIS)--As a central element in the financial crisis that started about five to six years ago, the US housing market is expected to continue to recover through the coming years, although remaining challenges will limit the industry to a slow but steady growth.

“Consistent, positive reports on housing starts, permits, prices, new-home sales and builder confidence in recent months provide further confirmation that a gradual but steady housing recovery is underway across much of the nation,” said David Crowe, chief economist for the National Association of Home Builders (NAHB).

“However, stubbornly tight lending standards for home buyers and builders, inaccurate appraisals and proposals by policymakers to tamper with the mortgage interest deduction could dampen future housing demand,” Crowe said.

The expectation is also based on the assumption that US lawmakers will avoid the “fiscal cliff”, or over $600bn (€456bn) in tax increases and spending cuts that become effective on 1 January unless the president and Congress can come to an agreement on economic policy.

“While we’re hopeful that something can be accomplished, the alternative would be a likely recession, so automatically spending and tax increases need to be addressed quickly,” said Lawrence Yun, chief economist for the National Association of Realtors (NAR).

New Construction

The US is seeing a transition from very low housing demand to a case where supply is becoming a problem, Crowe said. As more homes are built to address the tight supply, the new stock will be a more important element of the recovery.

The nation’s population is growing by 3m people a year, and new housing is needed as older units are replaced and as new households continue to grow by 1.4m a year, said the NAR’s Walter Moloney.

“It has to grow because construction activity from the past years have been way below normal,” Moloney said. “If construction does not return to normal, we’ll see pressure on the housing level, and it’s going to create an imbalance, and we don’t want to see that happening.”

Housing starts in 2011 was 612,000 units, less than one-half of normal, Moloney said. For 2012, that number is expected to increase 28% to 786,000 units, closer to the halfway range.

“In looking at the percentage increase, they’re pretty dramatic, but they’re not where they should be,” Moloney said. “We’re expecting a 44% gain to 1.1m [units in 2013], getting back to a more healthy level.”

Single- vs Multi-Family Construction

Single-family home starts are expected to climb by 23% to 534,000 units in 2012, posting another 21% gain to 647,000 units in 2013, according to NAHB predictions.

As new households form at a growing rate, so does builder confidence, the trade group said. The NAHB/Wells Fargo Housing Market Index, which measures builder confidence in the single-family housing market, has posted gains for eight consecutive months.

Meanwhile, new single-family home sales are expected to increase by 20% to 367,000 units in 2012 and 22% to 447,000 units in 2013, the NAHB said.

“Single-family housing has been revving up quite strongly, said Ken Simonson, chief economist for the Associated General Contractors of America (AGC). “Where we’ve had impressive growth is in multi-family construction. I do think we’ll have another year of double digit [growth] from 10-20%.”

Multi-family production is expected to raise 31% to 233,000 units in 2012, posting another 16% gain to 270,000 units in 2013, according to NABH predictions.

“Rather than having a house in the suburbs, where people have more land but need to [commute] by car, some are choosing to live in apartments or condominiums, where they have less space, but are closer to work or amenities,” Simonson said.

Existing Homes

While new homes continue to be built, economists are also expecting growth in existing-home sales.

The NAR predicts existing-home sales to increase by 9.0% to 4.64m in 2012 and by 8.7% to 5.05m in 2013.

Low demand and tight supply could result in higher home prices as the national median existing-home price should rise by 6% to $176,100 for all of 2012 and increase another 5.1% to $185,200 in 2013, the NAR said.

“Real estate will be a hedge against inflation, with values rising 15% cumulatively over the next three years, also meaning there will be fewer upside-down home owners,” Yun said.

However, rising rents, qualitative easing, federal spending outpacing revenue and the national debt are all raising inflationary pressures, possibly raising mortgage interest rates to 4% in 2013, the NAR said.

Yun projects inflation to be in the range of 4-6% by 2015, but sees no immediate threat.

“Housing will strengthen in 2013 even if the economy weakens because there is a demand for more construction, and the demand for apartments is rising at a faster rate than the need for more single-family homes,” Yun said.

The housing market is a key downstream consumer for the chemical industry, driving demand for a variety of chemicals, resins and derivative products such as plastic pipe, insulation, paints and coatings, adhesives, roofing materials and synthetic fibres.

The American Chemistry Council (ACC) estimates that each new home represents $15,000 worth of chemicals and derivatives used in the structure or in production of component materials.

For existing homes, the renovation and additions category is quite large, Simonson said, and until a few months ago, more money was being spent on home improvement than on new single-family construction.

$1 = €0.76

By: Tracy Dang
+1 713 525 2653

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