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February 03, 2020 09:31 AM

Solid job growth, low interest rates may fuel housing sector

Bill Bregar
Plastics News Staff
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    iStock photo
    Stingle-family housing starts should increase more than 3 percent from 2019, to about 920,000 units — still significantly less than the 1 million to 1.1 milliion units the National Association of Home Builders said demographics should be able to support.

    Economists at the International Builders' Show predicted that single-family housing starts will continue to move on a gradual, upward pace in 2020, fueled by solid job growth and low mortgage rates.

    The economists gave their forecasts at a Jan. 21 news conference at the show in Las Vegas.

    "Low resale inventory, favorable mortgage rates, historically low unemployment and accelerating wage growth are driving builder sentiment and point to single-family production gains in 2020," said Robert Dietz, chief economist at the National Association of Home Builders, which organizes the IBS trade fair.

    "At the same time, builders are still underbuilding as they continue to struggle with rising construction costs stemming from excessive regulations, a chronic shortage of workers and a lack of buildable lots. These affordability headwinds are impeding more robust construction growth."

    A recent NAHB report covering the last 10 years of homebuilding found that, adjusted for population changes, single-family construction in the 2010s operated at around half the pace of the rates from the 1980s, 1990s and 2000s. NAHB said that level of underbuilding, buoyed by what the trade association said were supportive monitory policy conditions, indicate that homebuilding will expand in 2020.

    Total housing starts — including both single-family and multifamily dwellings — are expected to reach 1.3 million units in 2020, up more than 2 percent from 2019. Although that would represent the highest output since 2007, NAHB officials said it is still well below the production levels from 1960 to 2007, when the total number of starts averaged 1.5 million units a year.

    Single-family housing starts should increase more than 3 percent from 2019, to about 920,000 units — still significantly less than the 1 million to 1.1 million units the trade group said demographics should be able to support. Some of the shortfall is from young adults who live at home, NAHB said.

    National Association of Home Builders photo
    At the International Builders' Show, economists identified hot markets for home construction.

    For multifamily construction, NAHB expects starts to hold fairly steady this year, at 383,000 units. Currently, 93 percent of multifamily units are built for rent vs. 7 percent constructed for sale to owners.

    New home sales are projected to total 708,000 in 2020, up 2.5 percent from last year. NAHB said that would mark the first year sales would surpass 700,000 since 2007.

    As sales of existing homes improve, residential remodeling activity should grow 1 percent.

    At the International Builders' Show, economists also identified hot markets for home construction. Frank Nothaft, chief economist at CoreLogic, said the South and the West will lead new-home growth in 2020.

    "Markets with good affordability, high employment and outdoor amenities have had the highest growth in new-home sales over the last year," Nothaft said.

    New-home sales are rising the strongest in the South, led by Dallas and Houston, averaging at least 30,000 sales between October 2018 and September 2019. Atlanta, Phoenix and Austin, Texas, all averaged at least 15,000 sales during the same period. Several southern metropolitan areas posted at least a 20 percent gain in new-home growth over the same 12-month period: Port St. Lucie, Fla.; Warner Robins, Ga.; Ocala, Fla.; The Villages, Fla.; and Sebastian, Fla.

    "The housing market is entering the year with a great deal of momentum from 2019," Nothaft said. "This is the first time in post-World War II history that unemployment and mortgage rates are both below 4 percent. That will help fuel demand."

    David Berson, senior vice president and chief economist at Nationwide Mutual Insurance Co., added that interest rates are expected to remain low for the foreseeable future, as the United States continues a long period of slow economic growth.

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