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U.S. isn't facing a housing shortage, NAHB's chief economist says

In recent months, some economists have cited a lack of new homebuilding as the cause of tight housing inventories and rising home prices. National Association of Home Builders (NAHB) Chief Economist David Crowe spoke with Scotsman Guide News about why the supply of single-family homes has lagged behind traditional levels, and also why he doesn’t believe the nation is experiencing a housing shortage.

Single-family starts fell in January and some analysts say the level of building has been a weak point in the housing market. Is this a cause of concern?

David CroweNot a  lot of concern, primarily because [single-family starts] had been rising. We had a pretty good report in the prior month, so a simple answer is that we are not concerned. We still see a pretty decent year for housing in 2016.

Over the last couple of years, why haven’t builders been more aggressive on the single-family side?

It is all about demand. For example, in one positive report this past week, we noticed that inventories of new homes for sale have continued to increase, but the [drop in] sales of new homes in general has [been the result of] a lack of demand. The lack of the buyers [is caused by] a number of things. One principal reason is that purchasers of new homes are almost always sellers of existing homes, and the turnover in existing homes has been extremely low. Without that feed from the existing market into the new market, the new market has been slow to recover.

Are there factors that are holding building back?

The number one factor is demand. There hasn’t been a robust demand from potential buyers, but it is also true that builders are having difficulty finding trained labor and also some difficulty in finding lots in desirable locations in places where people would want to live.

Some economists have said housing shortages are developing. Do agree with this?

I don’t agree with that at all. It is a lower inventory than we would normally be used to. If you compare the level of the inventory now to what it would be normally, you could perhaps come to that conclusion, but that is ignoring the fact that we have lower demand. You wouldn’t want to see the inventory exceed the expected demand. One of the ways to make that judgment is to look at the month’s supply of inventory; in other words, how long would it take to sell off the existing inventory if you were selling it at the pace most recently reported. Last week, the report was 5.8 months. That is slightly below ideal, but not much. Ideal is maybe six months. That is for new homes. Existing homes is a completely different story, and again that is where one of the hiccups occurs. The existing-home inventory is very low. The last report from them was only a four-month supply.

What is your forecast for single-family building this year?

We expect to see 851,000 single-family homes started. The historical norm is about 1.3 million, so there is no question we are behind history. But if we were to achieve that [851,000], that would be about 19 percent better than 2015. That is pretty reasonable, aggressive growth for 2016.  

There has been some worry about where the economy is headed. Is this affecting builder confidence?

It might have toned down confidence a little. NAHB’s housing-market  [builder-confidence] index for February was down a couple of points. I suspect the economic reports that everyone has been hearing for the past month put a little bit of a pause in builder sentiment. Builder sentiment is really nothing more than reflective of what they are seeing among their potential customers. It is still a good index number. We are still at 58, and anything above 50 is considered positive, and I expect the overall U.S. economy to do reasonably well this year to feed that expected increase in starts. 


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