NAHB Examines Strength of Housing Starts

Housing starts--both single-family and multifamily--are making a comeback with double-digit increases expected this year, but some states still face a long road to recovery, according to the ""National Association of Home Builders (NAHB)."":http://www.nahb.org/news_details.aspx?newsID=16257

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NAHB expects multifamily housing starts to rise 35 percent this year and another 5 percent next year. The association also anticipates a 23 percent rise in single-family housing starts this year, followed by another 28 percent increase next year.

The housing recovery is significantly outpacing the broader economic recovery. In the fourth quarter of last year, residential fixed investment increased 17.5 percent, while national economic output increased just 0.4 percent, according to NAHB.

Maury Harris, chief economist and managing director at UBS, is optimistic about employment and household formation over the next couple years.

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He predicts unemployment will decline to 7.5 percent by the end of this year and to 6.7 percent by the end of next year. As employment plays a major role in household formation, Harris expects about 1.1 million new households to form this year and another 1.3 million next year and the following two years.

Harris's optimism stems from Federal Reserve actions. ""My view is that monetary policy is more important than fiscal policy,"" he said.

While the sequester is set to take $85 billion from the economy this year, the Fed is adding as much to the economy on a monthly basis, Harris said.

""The public doesn't sufficiently appreciate all the good that the Fed is doing,"" Harris added.

Home prices have risen almost 6 percent over the past year, leading three-fourths of the metropolitan areas NAHB tracks to land on the association's list of improving markets.

The Midwest faces obstacles due to feeble manufacturing, but states with economies tied to energy and agriculture are experiencing rapid comebacks in their housing markets, according to Robert Denk, NAHB's assistant VP of forecasting and analysis.

States such as North Dakota, Texas, Oklahoma, Wyoming, Montana, and Louisiana ""are the first states projected to return to normal production levels by the end of next year,"" according to NAHB.

The association predicts that by the end of next year, the top 20 percent of states will be producing at or above 87 percent of their ""normal"" levels, while the bottom 20 percent will be producing below 60 percent of ""normal.""