However, “the housing market is coming back to life, GDP is up, and unemployment is decreasing,” AIA’s Frank notes. “The construction industry is likely to catch up to the overall economy through the rest of this year and into next year.”
The outlook is much less frightening moving forward than it has been for the past few years. According to NAHB forecasts, 2010 will be a year of stabilization in home prices, healing of credit conditions, and a return of builder and consumer confidence.
Increasing job formation and rising employment will drive demand for housing, and although there currently are about 10 million vacant homes on the market, Mark Zandi, chief economist for Moody’s Analytics, expects increasing demand will work through that excess housing in less than two years.
Housing demand sank to its lowest point in 2009—bottoming at 550,000 units—after peaking at 2.1 million in 2005. In response to increasing demand for housing, Zandi said during the NAHB’s conference, “I expect single-family and multifamily starts of approximately 700,000 units this year, closer to 1 million in 2011, and by 2012 closer to trend, which is about 1.7 million units.”
Unfortunately, foreclosures are likely to rise as strategic defaulters walk away from homes that have plunged in value, Zandi predicts, which could hinder the recovery. However, according to David Crowe, the NAHB’s chief economist, areas of the country that experienced a less dramatic boom and bust, and therefore suffered the least economic impact and have the least risk of increasing foreclosures, will be the first to recover.
Overall, lenders are starting to loosen restrictions, making access to mortgage credit more available. Zandi notes lending conditions should continue to improve through 2011. Also, access to jumbo loans will improve as lenders begin to feel more comfortable with the credit environment. “Jumbo lenders will become more aggressive and we’ll see more lending as we make our way through 2010 and into 2011,” he says.
Crowe predicts that although remodeling fell off during the housing downturn, it didn’t suffer nearly as much as new construction. Remodeling will pick up during the recovery and may even improve at a better rate than the overall construction market, according to Crowe. “People whose home values have been damaged may in fact decide to stay in place and remodel rather than move as they would have in the past,” he says.
