NAHB: Production to Pick Up Speed in 2013 as Demand Increases

2012's upward trends in most housing indicators point to continued growth in the new year--but the road to recovery isn't clear yet, the ""National Association of Home Builders"":http://www.nahb.org/ (NAHB) says in its 2013 outlook.

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""Consistent, positive reports on housing starts, permits, prices, new-home sales and builder confidence in recent months provide further confirmation that a gradual but steady housing recovery is underway across much of the nation,"" said NAHB chief economist David Crowe. ""However, stubbornly tight lending standards for home buyers and builders, inaccurate appraisals and proposals by policymakers to tamper with the mortgage interest deduction could dampen future housing demand.""

Crowe notes the market is transitioning from a very low demand level to a case where supply ""will start being the problem."" As new homes are built to address supply concerns, the new home stock is expected to take a much more active role in the recovery.

One major contributor to recent rises in demand is the growth in household formations. In the early part of the decade, the country averaged 1.4 million new households each year. The housing downturn brought that down by nearly two-thirds, but households now are being formed at a pace of nearly 900,000 per year.

""We're not up to normal, but this is adding to demand for housing,"" Crowe said.

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As household formation is picking up the pace, builder confidence is growing right along with it. The NAHB/Wells Fargo ""Housing Market Index"":https://themreport.com/articles/builder-confidence-up-again-in-december-2012-12-18, a measure of builder confidence in the single-family market, now stands at 47 after eight straight months of gains. The midpoint of the index is 50 (indicating a balance of builders who view the market as either good or bad), a level neither seen nor surpassed since April 2006.

Perhaps more encouraging is the substantial rise in the NAHB/First American ""Improving Markets Index"":https://themreport.com/articles/list-of-improving-markets-surges-to-201-in-december-2012-12-07 (IMI) over the last year. The index recognizes markets that have made considerable and sustained gains (from their respective troughs) in employment, prices, and housing permits. When the index first launched in September 2011, it contained 12 metro areas (out of 360); as of December 2012, the list stands at 201.

""One reason we have seen such a significant jump in the IMI is because house prices are beginning to recover,"" Crowe said. ""House prices bottomed out early in 2011 and since early 2012 we've seen a 6 percent increase on a national basis.""

On the production side, multifamily production is ""well on its way, back to 69 percent of normal,"" Crowe says, while the single-family market stands at only 40 percent of what is considered typical.

Having said that, NAHB projects single-family home starts will climb to 534,000 units in 2012, up 23 percent from 2011. The association forecasts further gains in 2013, predicting a 21 percent rise to 647,000 units. After that, it's an estimated 837,000 units (a 29 percent rise) for 2014.

Multifamily production is also expected to continue improving, but at a more modest pace as the market approaches normal levels: The NAHB estimates 233,000 units in 2012 (a 31 percent year-over-year increase), 270,000 in 2013 (a 16 percent increase), and 294,000 in 2014 (a 9 percent increase).

Meanwhile, new single-family home sales are expected to climb from 307,000 in 2011 to 367,000 in 2012, a 20 percent gain. The association anticipates an additional 22 percent climb to 447,000 in 2013 and a 36 percent rise to 607,000 in 2014.