More work predicted for house builders

The outlook by National Association of Home Builders Chief Economist David Crowe calls for U.S. sales of new homes and single-family home construction to improve this year compared to 2011, when they hit record lows.

The forecast still leaves new home sales and construction well below the levels of a healthy housing market, however. That reflects the severity of the industry’s downturn, and it suggests the housing market could be years away from full health.

“I’m looking at 2012 as sort of a ramping event to get a much more solid recovery in 2013,” Crowe said in a telephone interview.

The economist, who presented his forecast at the trade association’s annual conference in Orlando, Fla., sees sales of new, single-family homes climbing 19 percent this year to 360,000, up from 303,000 last year.

Next year, he expects those sales to rise by a whopping 40 percent to 505,000. Even if the forecast proves true, that still leaves new home sales below the 700,000-a-year pace that economists say must be sold in a healthy economy.

Construction and sales of new homes in Las Vegas fell to a 30-year low, however, and are not expected to improve much in 2012, housing analyst Dennis Smith of Home Builders Research said. Smith reported 3,894 new home sales last year, the lowest since he began tracking the market in 1988, when there were 8,500 sales.

“I think it’ll be a little better, primarily because of tightening of the spigot of distressed properties and what’s taking place today,” Smith said last week during his 2012 housing outlook. He’s projecting about 4,000 new home sales this year and 4,200 in 2013.

New-home building permits fell accordingly to 3,782 in 2011, and Smith sees them slowly climbing to 4,000 in 2013.

Crowe’s outlook also hinges on unemployment staying below 8.5 percent and the economy adding more jobs. And he’s assuming that tight mortgage-lending requirements will ease this year, enabling more homebuyers to qualify for financing.

Freddie Mac Chief Economist Frank Nothaft, who also issued a housing outlook at the NAHB conference, said he expects total home sales to grow 2 percent to 5 percent this year, thanks in part to still-low mortgage interest rates. He anticipates the average rate on a 30-year mortgage will remain below 5 percent this year.

Many economists are expecting a brighter year for housing, citing positive economic data in recent months. The nation’s gross domestic product expanded slightly last year. The nation has been steadily adding more jobs. And the national jobless rate has fallen from 9 percent as recently as September to 8.3 percent last month.

Ed Sullivan, chief economist for Portland Cement Association, is not so optimistic. He projected 443,000 new single-family housing starts in 2012, a meager 3.26 percent increase from 2011.

Even with significant gains in 2013 and 2014, it will take until 2016 for the housing industry to be back to 2002 levels, he said.

“The only reason anyone builds a home is the prospect of making money. You can’t make money if there’s too much inventory out there and prices continue to decline,” Sullivan said at the World of Concrete trade show in Las Vegas.

As long as foreclosures are competing with new-home sales, recovery in the housing industry will drag on, Sullivan said. Foreclosures might begin to decline this year after adjustable-rate mortgages are reset, he suggested.

Still, the housing market has to come up from the deep trench it sank to in 2011. Last year was the weakest year for single-family home construction on record. And sales of new homes sank to the lowest level on records going back a half-century.

High unemployment, uncertainty over the economy and concerns that home prices could fall further kept many prospective home buyers on the sidelines. Others opted to buy cheap foreclosures rather than new homes.

While new homes sales represent a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the NAHB.

In 2011, builders began work on 606,900 homes. That was slightly better than in the previous two years, but only about half the number that economists equate with healthy markets.

Crowe’s forecast calls for builders to break ground on 706,000 homes this year, an increase of 16 percent. He sees that rising 27 percent next year to 895,000.

Looking only at single-family homes, which account for roughly 70 percent of the market, Crowe projects construction will be started on 499,000 homes this year. That represents a 16 percent gain from last year. He anticipates a 32 percent jump in 2013.

Review-Journal reporter Hubble Smith contributed to this report.