It's Halloween so I'm thinking about candy. And, I'm just recently back from the NAHB Building Systems Housing Summit which was held in the chocolate-candy capital, Hershey PA. early this month. What I learned is sweet, more treats than tricks.
NAHB economist Robert Dietz told us that the housing industry forecast for 2017 is an estimated 841,000 single family starts, up 7% vs. 2016. Home buyer demand is strong, fueled by positive demographics, job growth and continued low interest rates. But a labor shortage and energy regulations have created some headwinds.
NAHB's forecast for single family housing starts in 2018 is up another 7% to 900,000 units. This compares to the trough of the market, March 2009, of 353,00 single family starts. A "normal" single family market is over 1 million starts. We are climbing back to "normal," but gradually. Regulatory costs, for example, have increased 29% over the last five years. There are fewer lots available on which to build. The construction industry's labor force is getting older, less productive and harder to find.
But strong home buyer demographics, job growth and the restoration of home equity has driven growth and will continue to do so. Real estate home equity is back up to $14 trillion from a low of $6 trillion. Housing growth is expected, despite a likely rise in interest rates to 5% next year. I bought my first house when rates were 17%!
Gen Xers and Millennials are of home buying age and household formation is growing. But student debt and auto loan debt are larger than ever; this is a drag, according to Dietz of the NAHB. So, baby boomers it seems, remain the strongest buyers which is reflected in the rising size of homes, up to a median 2,430 square feet in 2016 for site-built and 2,847 for panelized homes. The average time it takes to build a site-built house is 6.6 months vs. 5.8 months for building a panelized house, according to NAHB.
The remodeling market is also strong, a prediction I've made here before. The housing stock is getting older; about 30% of the housing stock is over 50 years old. Existing houses are less expensive than new ones, and these old houses are in neighborhoods where people want to live. The remodeling market will grow 14% in 2017, according to NAHB. For the next two years remodeling grows a little more, by 7% total, which is a conservative estimate, I think.
When I interview industry suppliers, builders and architects about their own business and the economy, here is what they say:
"Clients are upbeat, but negotiating price is the new normal. The 'never hurts to ask' (for a lower price) is here to stay."
"Business is good due to improved consumer confidence."
"The adaptive re- use from schools, factory buildings and military facilities…into apartments…is a very active market segment. We also see a lot of University work."
"We have record orders and should meet our aggressive growth goal this year. But we saw a noticeable slow down after the hurricanes, which lasted two weeks."
"Clients are in a hurry, then they're not. Decision paralysis is due to too many choices and voices, exacerbated by the internet and the know-it-all brother-in-law."
"We will not see a housing 'boom' until mortgage lending standards are loosened."
Our own research (among our 10 million home buyers and remodeling consumers) underscores NAHB data: the industry is not building as many units as "the good old days," but houses are bigger and more expensive. Whole- house renovation is strong, in metro markets, where land values have escalated quickly. Traditional building and renovation is also robust as delayed projects come back.
A recent survey we sent asked: "what factors do you see contributing to the growth of our industry?" The answers ranged from "Republican majority," to "pent up demand," to "baby boomers." When asked, "what factors might contribute to a decline in the industry?" answers ranged from "difficulty getting wood from Canada," to "energy codes," to "rising material costs and a labor shortage."
GDP growth is expected to go up 2.2% in 2017 and another 2.3% in 2018. Prior to 2007 GDP growth was more like 3.4%. The boom-times are in the rear-view mirror but up ahead looks positive albeit with a few speed bumps.