A NEW 10-YEAR FORECAST ON HOUSING and home finance predicts that demand for housing will result in the construction of 2 million new homes annually in the U.S. through 2013—exceeding the production rates of the 1980s and 1990s. The foundation for America’s housing industry appears remarkably strong despite an expected rise in interest rates, according to five top housing economists who collaborated on the study. Their conclusions were reinforced by a combination of projected population and immigration growth and a national homeownership rate expected to exceed 70 percent over the coming decade.
“America’s Housing Forecast,” which also examined the long-term outlook for home prices and mortgage funding, was released in late May by the Homeownership Alliance, an association of 18 national housing-related organizations. Co-authoring the study were chief economists David Berson of Fannie Mae; Frank Nothaft of Freddie Mac; Paul Merski of the Independent Community Bankers of America; David Seiders of the NAHB; and David Lereah of the National Association of Realtors.
At the heart of the forecast are expectations that an average of 1.32 to 1.63 million new households will be created each year, depending on whether immigration growth rates hold at moderate levels, or run higher, which several of the economists believe is more likely. A second, often overlooked factor is the number of net existing homes expected to be removed from the market—housing stock converted to other uses or demolished due to obsolescence and disasters. That number is projected to average nearly 400,000 a year, roughly twice the rate of the past 10 years.
Among their predictions, based on different immigration scenarios, are:
The press conference where the study’s findings were released was briefly overshadowed by the Commerce Department announcement earlier that same day that new single-family home sales for April had fallen 11.8 percent to a 1.093 million units—the largest monthly percentage decline in a decade.
The NAHB’s David Seiders dismissed the apparent irony of the one-month decline against the larger backdrop of the study’s forecast. Seiders noted that while there has been a gradually declining pattern in new-home sales from the first quarter, April’s drop-off was inevitable given March’s unusually high sales pace. Seiders attributed the spike in March to delays in activity early in the year resulting from poor weather followed by a surge in late first quarter sales.
Still, the report pointed to several challenges and risks that could undermine the forecast. One is the pace of increasingly stringent land controls that are impairing housing affordability in many markets. Another is concern over federal budget deficits, which may hurt housing by pushing up interest rates further than expected while threatening funding for existing homeownership programs. Also of growing concern are fears of possible regulatory changes that could crimp the flow of funds available from secondary mortgage markets.
| Housing Supply and Demand (annual averages in 000s) | |||||
|---|---|---|---|---|---|
| 1974-1983 | 1984-1993 | 1994-2003 | Forecast 2004-2013* | ||
| Change in Households | 1,373 | 1,316 | 1,226 | 1,316 | 1,628 |
| Change in Vacancies | 136 | 275 | 306 | 135 | 148 |
| Net Removals | 290 | 104 | 235 | 398 | 398 |
| Total Net Demand | 1,799 | 1,695 | 1,767 | 1,849 | 2,174 |
| Single-family | 1,017 | 1,023 | 1,193 | 1,334 | 1,549 |
| Multifamily (2-4 units) | 99 | 66 | 34 | 46 | 58 |
| Multifamily (5 or more units) | 408 | 375 | 251 | 274 | 348 |
| Manufactured | 275 | 232 | 289 | 195 | 219 |
| Total Supply | 1,799 | 1,696 | 1,767 | 1,849 | 2,174 |
| * Forecast for “moderate” and “high” immigration projections | |||||
Ultimately, the report’s authors concluded, the forecast depends on the elaborate “partnership between the private sectors that produce, sell, and finance housing in America and the public sectors that regulate and influence resource allocation through the political process.” Assuming that balance holds fast, the long-term outlook for housing pointed to a prolonged period of unprecedented growth.
“Even the lower end of this range is above the production levels of recent decades,” said Seiders.
“A rising homeownership rate will translate into at least 10 million additional homeowners by 2013, with roughly one half of the gain accruing to minority households,” added David Lereah, of the NAR, in support of the projections.
“With the national unemployment rate below 6 percent,” said Fannie Mae economist David Berson, and with “extremely low mortgage rates and economic growth accelerating, the likelihood of a decline in home prices at the national level is quite remote.”
To download the report, go to www.homeownershipalliance.com.
