Washington, DC, Dec. 18--Coming off one of the housing market’s best years in history in 2003, the nation’s home builders expect to stay nearly as busy next year as rock-solid market fundamentals continue to bolster demand for new homes and apartments nationwide.
"Based on our expectations for mortgage rates, house-price performance, household formations and overall economic conditions, we’re very optimistic that demand for new homes and apartments will settle at a slightly lower, but still-robust level in the new year," said Kent Conine, president of the National Association of Home Builders (NAHB) and a home and apartment builder from Dallas.
"With most--but not all--of the data in for 2003, it’s obvious that this has been a record-breaking year for the single-family market and for homeownership in the U.S.," said NAHB Chief Economist David Seiders. "Not only will new-home sales break the million-unit mark for the first time on record, but it’s now apparent that total production of new single-family homes (including homes built on owners’ lots) will hit its highest level in history in 2003, at about 1.5 million units. Moreover, evolving market fundamentals--including a modestly higher interest rate structure, stronger job and income growth, and maintenance of strong demographic foundations (bolstered by robust immigration)--will keep single-family market activity at an elevated level in 2004."
Sales of new single-family homes should once again eclipse one million units next year, NAHB predicts. On the production side, starts of single-family units should recede by only about 3.5% to 1.45 million units. In the multifamily sector, a strong condo component and solid production of federally subsidized low-income rental housing will continue to provide essential support to the market while better job growth will help combat high vacancies in market-rate rental housing. As a result, NAHB projects a mere 1.5% decline in multifamily production to 342,000 units this year, followed by some further softening in 2004 to 327,000 units.
"Remodeling of existing housing--primarily improvements to owner-occupied homes--will also continue to be a major factor in terms of housing-related spending in this economy," Seiders said. "We’re projecting about $182 billion of residential remodeling activity in 2003 and $192 billion in 2004."
Production of manufactured homes has been the weakest component of the nation’s housing market in 2003, but this market apparently stabilized around mid-year. NAHB is estimating shipments of 132,000 units in 2003, followed by slow recovery to 145,000 units in 2004--still only about two-fifths of the peak rate in the late 90s. Total production of new housing units (conventionally built units plus manufactured homes) will be around 1.92 million units in 2004, down from an estimated 1.97 million this year.
Overall, housing production should proceed at a strong and relatively stable pace next year, providing firm support to the economy but not continuing to serve as a major growth engine in the GDP accounts, Seiders noted. "In turn, we expect the nonresidential business sector to assume a stronger role in the evolving economic expansion," he said.
NAHB expects the housing production component of Gross Domestic Product--residential fixed investment--to expand only slightly next year following a roughly 10% gain in 2003. A central factor in the housing outlook is a favorable financing climate, which will continue to buoy home sales, remodeling activity and apartment building. NAHB expects the average rate on long-term home mortgages to remain under 7% throughout 2004, climbing only gradually from the current 5.9% range to about 6.6% by year-end. The cost of adjustable-rate home loans should stay historically low, largely reflecting maintenance of a 1% federal funds rate by the Federal Reserve for most of the year.
