The number of housing starts nationwide will rise modestly this year to near 700,000, then accelerate to roughly 1 million in 2011 and perhaps climb to as many as 1.7 million starts in 2012, a trio of housing economists predicted Tuesday afternoon. Those forecasts followed news that housing starts climbed 5.8% in April from the month before to reach a seasonally adjusted annual rate of 672,000 homes.
The presentations by Chris Varvares, president of Macroeconomic Advisers, Mark Zandi, chief economist at Moody's economy.com, and David Crowe, chief economist and senior vice president of the the National Association of Home Builders (NAHB), all cited economic indicators that favor the housing market: a rise in personal consumption, increased residential investment, and a need to increase inventories of homes to reflect recent reduced production and continued population growth.
"We do see housing really ramping up in 2011," Varvares said during the NAHB-sponsored webinar.
While similar, the trio's forecasts varied slightly. Crowe, the most conservative, predicted the total number of single- and multifamily starts would rise from 554,000 in 2009 to 645,000 this year and 991,000 in 2011. Zandi foresaw 700,000 single- and multifamily starts this year, 1 million in 2011 and--assuming there aren't any big economic surprises--close to 1.7 million starts in 2012. Many economists view that 1.7 million rate as the number of starts America can sustain annually over the long run given the country's population and financial growth.
Varvares, who focused only on the single-family side of housing, predicted roughly 700,000 starts this year and close to 1.2 million by the end of 2011.
Crowe cautioned that the recovery won't be the same in all states because the housing slump varied so dramatically across the nation. By the end of 2011, he said, many Southern and Plains states--where the recession's effects were relatively slight--will rebound to at least 89% of normal production. In contrast, the Great Lakes states plus California, Florida, Nevada and Arizona will still be below 70% of normal production at the end of next year.
Most of those slowest-to-rebound states also have the highest foreclosure rates, which Zandi called a "key threat" to his forecast. Roughly 15 million homeowners nationwide have negative equity in their homes, he said, and 9 million of those are "under water" by more than 20%. He said we're in an era now in which people are choosing to default on their mortgages rather than keep paying them because they see no value in putting money into a home that's worth so much less than its original sales price. Varvares also noted the foreclosure threat, but he concluded: "It's certainly possible to work off the inventory with the kind of aggressive market that we have."
Tuesday's other report on current conditions--the Commerce Department's residential construction report--actually was more favorable to single-family housing than the topline numbers indicated. That's because starts of multfamily projects actually fell 23.6% in April from the month before while single-family starts were up 10.2% month-over-month. April's new numbers mean single-family starts are up 53.6% from where they were in April 2009, while multfamily starts are down 15%.