While the 2004 U.S. housing market will not hit the record highs it enjoyed over the past few years, economists from the National Association of Home Builders (NAHB) still expect home building to be one of the strongest sectors in the national economy for years to come.
At the NAHB Construction Forecast on Oct. 22 in Washington, D.C., several nationally recognized economists from NAHB, lending institutions and Economy.com agreed positive demographic trends, a continuing surge in immigration and low mortgage rates would support 1.7 million total housing starts (single-family and multi-family combined) in 2004. While down from the 1.786 million housing starts NAHB forecasts for 2003, home builders will still be breathing the rarified air of a market still posting near-record numbers.
David Seiders, NAHB chief economist, said that historically, “The housing market is destroyed in a recession. We crusaded through the 2001 recession. Growth has been outlandishly strong. The fallback will be modest.”
Seiders was also enthusiastic about the comeback of the overall U.S. economy after it posted a 6 percent gain in gross domestic product (GDP) in the recently ended third quarter. Seiders expects fourth-quarter GDP gains to be 4 percent, and said the economic numbers for second-half 2003 will be “dynamite.”
Not everyone agreed with Seiders’ optimistic assessment of the economy. Because of concerns with unemployment and uncertain employment growth prospects in the near future, some attendees questioned the view held by Seiders and other economists that, statistically speaking, the recession ended in fourth-quarter 2001 because GDP began improving during that time period.
While the overall tone of the conference was quite optimistic, one of the panelists, Mark Zandi, the chief economist and co-founder of Economy.com, wasn’t as bullish. He said the nation needs new job growth to continue any expansion because it cannot depend on this year’s tax cuts and refinancing to continue supporting growth.
“If we don’t start creating jobs in some measurable amount over the next few months, this recovery will fade,” he said.
While other economists at the conference said refinancing had helped home owners improve their financial “balance sheets” by cutting mortgage payments and giving them extra capital to pay down consumer debt, Zandi saw too many home owners who had extended their borrowing too far.
Zandi does not believe the recession has ended yet for the United States. Instead, he expects the recovery to come in waves, with different regions of the country returning to economic health at a rate dependant on which industries they depend on.
He said some areas of the country that depend heavily on military spending, like Florida; Norfolk, Va.; San Diego; and Arizona, are healthy and are already setting new employment records. Metropolitan areas that depend on the computer hardware, travel or energy markets, like Austin, Houston and Atlanta, can expect to see employment returning to near peak levels in the first half of next year, he said. Bringing up the rear in his view will be markets that depend on the auto industry or investment banking, which he said won’t come back until 2006.
Three topics sparked plenty of discussion at the conference:the impact of immigration; the “no sprawl” building policies that some local, county and even state governments have enacted; and the concept of a “housing bubble,” where home values remain artificially high and could be susceptible to fast declines sparked by any number of outside economic factors.
Michael Fratantoni, director of economic and policy research for Fannie Mae’s Regulatory Policy division, said immigration will be a key driver in population growth over the next decade, and that as immigrants become assimilated into the United States, they will become a huge force as first-time homebuyers.
The panelists dismissed the housing bubble theory because they said housing inventory was low, and that home builders were starting new houses in response to actual demand from home buyers, not speculators looking for a quick return.
Panelists said the “no sprawl” policies common in California coastal communities, much of the state of Oregon and in many rural markets that want to maintain a low-density housing profile are spreading, driving up the costs of available building lots.