NAHB: 2010 will be better, but still bad

by bkrigbaum@solagroup.com

From the NAHB – This year promises to be a happier one for both the economy and housing. More pain from a battered and bruised U.S. economy may lie ahead but the general trajectory has turned from down to up.

The worst is over, but the economy and housing in particular will remain subpar and unable to perform at normal, healthy levels.

Looking into our crystal ball for 2010, we see a long haul back to full health following a long, brutal recession. The national economy will continue to gain strength throughout the year, but at a slower pace than is characteristic for the early stages of recovery.

Real (inflation-adjusted) gross domestic product (GDP) is expected to grow about 3% in 2010, compared to essentially no growth (0.4%) in 2008 and negative growth (an estimated decline of 2.5%) for 2009.

While this year’s relatively sluggish growth will be sufficient to produce gains in employment, the pre-recession employment peak won’t be reached for a long time and the unemployment rate will languish at an unacceptably high level.

Coming off an estimated modern historical low of 555,000 total starts in 2009, housing production should rebound by about 25% this year to just under 700,000 units, according to NAHB projections. There is certainly a measure of good news in this forecast, but it hardly represents a return to normalcy.

Based on demographics and other factors, an annual average of 1.8 million housing starts per year will be needed over the next 10 years and 2010 starts are not likely to provide even half of what is needed.

Improvements in residential construction this year will be largely concentrated in single-family construction. Builders successfully reduced their inventory of new single-family houses in 2009 to levels last seen in 1971 — for a population that has grown by 80% since that time.

NAHB is forecasting just over 600,000 single-family starts in 2010, up from an estimated 440,000 starts in 2009. In a normal market, we would be constructing 1.5 million single-family starts on average yearly.

Although multifamily housing activity should stabilize and improve by the end of 2010, it will be slower than in 2009, with starts declining from an estimated 112,000 last year to an even lower 87,000.

Difficulty in obtaining financing for condos and apartments remains a major stumbling block to new projects, followed closely by historically high vacancy rates that are expected to ease up by the second half of the year, though not by much.

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