2016 Housing Economic Outlook

As most of us know, part of being in the building industry is learning to weather the storm—through the good and the bad. The last few years have tested the grit of everyone in this industry, from the manufacturers to the distributors to the dealers to the pros. And as we also know, the economy is still recovering from those difficult times—and so is the building products industry. But one of the main questions on everyone’s mind as they plan ahead for a successful 2016 is simple: What is the outlook for housing?

The answer is a little less simple than that, but according to a presentation at the 2016 International Builders’ Show (IBS), this is the basic gist for this year’s housing outlook: good, not great.

The fact that the industry is approaching this year’s growth with a certain level of realism is a good thing for this industry. For many years, the industry has not been what it once was and what we would all like it to be. And for a time several years back, it appeared to be on the path to huge recovery. People incorrectly projected the growth for the industry, and as a result, the industry is smarter in their approach to the growth we are seeing this time around. Where once outlandish predictions were made, we now see a cautiously optimistic attitude.

David W. Berson (Nationwide Mutual Insurance Co.), David Crowe (NAHB), and Frank Nothaft (CoreLogic) spoke on this topic at IBS this year, each covering different aspects of the economic and housing outlook for 2016 and beyond. Here’s what you need to know from those presentations.

Positive Indicators for the Housing Industry:

• It’s all about jobs—jobs and dependable income, that is. Jobs are rising, which is a positive sign. Job growth averaged about 240k per month in 2015.
• Consequently, consumption has seen stronger growth this year than in the past few years. Consumption in this case is important, because it is a reflection of how people feel about the economy. And fortunately, as consumption has risen, so too has consumer confidence—now nearly back to its pre-recession peak.
• Home building spending is consistently up, showing strong growth in residential activity. Finally, housing is leading and helping the rest of the economy again. Building sentiment is rising; builders feel good about the index, seeing it at around 60.
• After an eight-year slump, we are beginning to regain lost households. As household formations return, the number of people living alone and/or forming their own households has reached about 1.6 million.
• Rent growth has occurred at a much faster rate than general price inflation. For now, that is great for the rental side of housing, but could eventually have adverse effects for the multi-family business. As older Millennials are seeing a stretch in rent payments disproportionate to the way cost of living has inflated, they are beginning to move from renters to owners.
• New home sales saw a 13% increase in 2015. Still lower than during the boom, but still good. In July of 2015, housing starts in the US were up to over 1.2 million—the highest since October of 2007.

Consideration Points for the Housing Industry:

• Existing homes sold are down for 2015. Continued growth will require the industry to improve on that.
• Younger Millennials living with their parents has increased exponentially since 2000. Consider that today, 21% of adults aged 25-34 now live with their parents. Compare that to 2000, when only 12% of adults in that age range lived with their parents: this is a 75% increase in 25-34 year-olds not paying rent or a mortgage. This is incredibly troubling for the housing industry when you remember that, for most college grads, this age range would be at minimum two to three years out of school. (57% of adults age 18-24 live at home by comparison.)
• The top four builder concerns for 2016 are cost and availability of labor, cost and availability of developed lots, federal environmental regulations and policies and building material prices.
• House pricing should rise 4-5% next year, and credit and availability will likely increase, but not enough to make a real impact.

Those of us in the building products industry who have survived since 2008 have reason to be proud—and reason to be optimistic about the future. The prospect for 2016 and 2017 is good, but we need to temper our expectations; it may be good, but it isn’t great yet. As we navigate the coming year, it is important to keep this information top of mind as we set goals and establish plans for the future.