While strict lending standards may be precluding some from the housing market, one economist insists banks want to lend. It is lackluster employment and slow household formation among Millennials that is hindering the market now, according to Maury Harris, managing director and chief U.S. economist at UBS during a discussion hosted by the National Association of Home Builders (NAHB).
“Banks have over $2 trillion of excess reserves,” Harris said. “Banks would like to put that money to work and increase lending, which would help the economy.”
As Millennials returned to their parents’ homes or bunked up in shared apartments rather than living on their own, household formation fell short over the past few years. However, Harris predicts this trend will soon turn around.
“I think we will see the shared household rate come down, less doubling up and a pickup in household formations,” he said. In fact, he predicts 1.15 million housing starts in 2014 and 1.35 million in 2015.
The NAHB also predicts an increase in housing activity this year, forecasting a 29 percent rise in new-home sales this year for a total of 557,000.
Currently, new-home sales make up a relatively small percentage of total home sales by historical standards. New-home sales account for about 8.8 percent of total home sales nationwide, compared to a historical average of 16.1 percent, according to the NAHB.
NAHB’s chief economist, David Crowe, pointed out a few factors holding building back right now. “Supply constraints related to lots and labor and rising lumber, gypsum and OSB (oriented strand board) prices are hurting the ability of builders to meet demand,” he said.
Regardless, the NAHB predicts increases in both single-family and multifamily building this year. Single-family housing production will increase 22 percent this year and another 55 percent next year, according to the NAHB. Multifamily production will increase 8 percent this year, bringing it in line with historical norms at about 331,000.
Mortgage rates are also expected to continue their upward trajectory this year, rising to 5 percent by year-end and to 6 percent by the end of 2015, according to the NAHB. While certainly higher than some of the record-lows seen during the recession, Crowe reminded his audience these increased rates remain low compared to historical averages.
Furthermore, Crowe suggested rising rates will “not be a significant deterrent to expansion in the housing market.”