United States Housing Market Turns the Corner - Is Poised for Significant Growth in 2013

All factors point to a very robust 2013 for the United States housing industry:

1. As observed in the chart below, January housing for sale listings are 47% below their recent peak in July, 2010, and are at their lowest level since 1999;
2. Job growth has averaged 205,000 over the past four months, adding 820,000 jobs to the economy, which underpins the housing market;
3. Home construction has been extremely low for the past four years, limiting the available stock and supply of housing units;
4. House values and the stock market have rebounded, essentially erasing household debts acquired during the recession; and
5. Share of household income being used to pay off debt is at 10,6%, which is the lowest proportion of income in the past 29 years.

The coincidence of these factors bodes extremely well for growth in the housing industry.  One estimate expects new housing units to increase 40.8% from 2012 to 2013, increasing from 781,000 units to 1,100,000 units.  House prices have experienced their biggest year-over-year jump since May, 2006, according to the CoreLogic home price index, which increased 8.3 percent comparing December 2012 to December 2011.  The housing industry has turned the corner, and is expected to contribute 0.7% to the growth in the economy this year.

Sources:

1. USA Today
2. National Association of Realtors

United States Housing Starts Near Five Year High

United States single family housing starts roared ahead in February to four and one-half year high.  All indications are favorable for a solid recovery in the housing sector, including upward pressures on construction employment and sales of building materials.  In summary:

1. February single family housing starts, at 618,000 units on an annualized basis, are at a 4 1/2 year high;
2. Building permits in February increased 4.6% to 946,000, which is the most since June, 2008, and bodes well for future higher levels of construction activity;
3. February 2013 housing starts represented a 31% growth over February 2012 housing starts;  
4. Existing home prices in January, 2013, were 10% higher than January 2012, due to a strengthening economy;
5.  There is a 13 year low in houses on the market for sale, further putting upward pressure on housing prices; and
6. The outlook for sales over the next six months rose to its highest level in in more than six months.

In the chart below, showing housing starts and recessions.  There are a few additional points that can be made.  Note in the chart below that housing starts dropped during the recession to their lowest level in decades.  The recent recovery in housing starts is fantastic from an economic perspective, but the starting point is so depressed, but housing starts have to grow by another 60% before reaching the long term average of close to 1,000 housing starts per year.  

It is also instructive to observe that precipitous falls in housing starts preceded four of the last five recessions.  We can also observe fairly steep housing start run-ups, representing overbuilding that gets out ahead of sustainable market levels.

Finally, one of the concerns noted by home builders, relative to their ability to meet increased demand, is their concern over having access to sufficient labor, land and materials.  Accordingly, it is likely we will see continued increases in construction employment over the next few years, which will be an important contribution to reducing unemployment.

Sources:

1. United States Census Bureau, U.S. Department of Commerce
2. Associated Press