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New York Stsate Governor's Office

NAHB Forecast Sees Growth in 2nd Half

May 6, 2003
The economists gathered recently for the National Association of Home Builders' (NAHB's) semi-annual Construction Forecast Conference in Washington, D.C., predicted significant improvement beginning in the year's second half.

The economists gathered recently for the National Association of Home Builders' (NAHB's) semi-annual Construction Forecast Conference in Washington, D.C., predicted significant improvement beginning in the year's second half. Nearly every panelist agreed that housing construction in 2003 will likely equal or even slightly surpass last year's 1.7 million units, with single-family activity remaining especially strong and multifamily production receding only slightly. NAHB Chief Economist David Seiders noted that the housing component of GDP grew 12 percent in this year's first quarter-faster than any other part of the economy. "Residential fixed investment accounted for fully one-third of total GDP growth in 2003's first quarter, even more than the substantial support it provided in 2002," he said. David Wyss, chief economist for Standard & Poor's, doesn't expect business spending to take the lead in the economy anytime soon because only 73 percent of the nation's industrial capacity is being used. Also, consumers, who demonstrated resilience in the aftermath of Sept. 11 and in the midst of significant job losses, appear to be "spent out." As a result, he expects the recovery to be disappointing and sluggish for at least a few more quarters. Wyss forecasted that capital spending on equipment and high-tech would proceed at roughly half the 15 percent growth rate that typically occurs in a vigorous economic recovery. Most of the demand is coming from replacements of obsolete computers, "and that doesn't get us back to boom times," he said. On a positive note, fiscal stimulus - including about $100 billion spent on the war and a tax cut of about $450 billion - will help keep the economy growing, Wyss noted, and strong monetary stimulus is already in place. But don't look for much help from the stock market, which, according to Wyss, has entered into "a period of sub-normal gains." His prediction: "The market will level off and will look a lot less exciting than in the '80's and '90s." Frank Nothaft, chief economist for Freddie Mac, said fiscal and monetary stimulus will push economic growth toward an annual rate of 4 percent in the second half of 2003, up from about 2 - 2.5 percent in the first half. He also said mortgage rates, which have been at their lowest levels in more than 40 years, will continue to be "a powerful stimulant to the housing sector" and predicted that 30-year, fixed-rate mortgages will average between 5.75 percent and 6.25 percent throughout this year. As interest rates push higher, he noted, the current refinancing boom should lose some steam. But there are at least a couple more good months in store for refinancing. As Nothaft explained, refinancing an average $130,000 to $140,000 home loan last year reduced monthly payments by $100. "That extra $100 per month in a family's pocket is as good a stimulus to spending] as a tax cut," he said, adding that, in cash-outs from refinancing last year alone, home owners took away an extra $90 billion from the settlement table. Panelists forecasting the direction of home prices at the Construction Forecast Conference noted that the annual rate of house price increases is tapering off in most parts of the country. NAHB's Seiders said that, from a peak of about 9 percent nationally at the beginning of the 2001 recession, annualized increases have receded to some degree and should decelerate a bit further, eventually settling in at the 4-5 percent range. He added that media speculation about house-price bubbles will also likely fade as the economic recovery progresses. Freddie Mac's Nothaft also noted the current inventory of homes for sale is "at its lowest level in 30 years," and this, too, is evidence that a so-called "bubble" isn't forming. "You need oversupply for a price bubble," he said. As economic recovery takes shape, albeit slowly, certain states and their major metro areas are likely to reap the benefits sooner than others based on each one's major industries. Mark Zandi, chief economist and cofounder of, said the first areas on the road to recovery will be "chips and distribution centers" as businesses begin rebuilding their depleted inventories. Such front-runners will include places like Tampa, Orlando, Baltimore, Memphis, Philadelphia, central New Jersey, San Antonio, Austin, Phoenix, San Diego, Los Angeles, Las Vegas, Oakland, Sacramento and Portland. Next in line will be metros where software and travel industries are heavily represented, as companies expand their advertising, travel and investments in computer hardware and software in a bid to increase sales. At this point, the tide of recovery should hit Atlanta, Charlotte, Indianapolis, Chicago, Minneapolis, Salt Lake City, San Jose and Houston. These areas will be followed by metros where telecom and money management outfits have the most pull - most notably Boston, Pittsburgh, Kansas City and San Francisco. Beginning in next year's first quarter, traditional manufacturing centers like Detroit, Milwaukee and major Ohio metros should start catching the recovery wave, followed by investment banking and commercial aircraft building centers - like New York and Seattle, respectively. Taking a somewhat broader view, NAHB Director of Forecasting Stan Duobinis observed that places where home building, defense, health care and tourism are top industries - like south Florida, southern California, Las Vegas, San Antonio and the Philadelphia-Washington-Baltimore corridor - have all managed to maintain relatively stable economies and are ahead of the pack on the road to recovery. Only five states experienced greater than 1 percent employment growth between February 2002 and February 2003, Duobinis noted. These include Hawaii, Nevada, New Mexico, Florida and Alaska. Others on his top-10 list of the most robust economies include Arizona, Vermont, South Carolina, Wyoming and the District of Columbia.The weakest state economies on Duobinis's list include North Carolina, New York, Michigan, Oklahoma, Connecticut, Delaware, Utah, Ohio, Massachusetts and Missouri. Even if the currently robust housing market loses some steam this year, Duobinis said single-family home sales and production will post gains in more than half of all states - primarily in the South and Southwest. Likewise, the multi-family market will expand at least slightly in 26 states, particularly California, Florida and Nevada.