After a long, hard slog, housing starts (both single and multi-family) are poised to approach the long-term average (1959-2014) of just under 1.5 million units in 2016.

After a long, hard slog, housing starts (both single and multi-family) are poised to approach the long-term average (1959-2014) of just under 1.5 million units in 2016. 

Specifically we are forecasting housing starts of 1.14 million units this year and 1.42 million units and 1.44 million units in 2016 and 2017, respectively. This level of activity is well above 1.00 million units recorded in 2014 and the 2009 low of 0.55 million units. Remember that the level of activity we forecast is far from the mid-2000s boom level of above two million units a year. We would also note that with the shift to multi-family starts, the per-unit GDP “bang for the buck” has declined, but that factor has been partially offset by increased emphasis on higher-end housing in the new construction market. Our forecast is underpinned by continued growth in real GDP that will likely run at a 3% rate in 2016, continued jobs gains in excess of 200,000 a month for most of the forecast period, relatively low mortgage rates--at least through 2016 and household formations in excess of one million a year in 2016 and 2017. To dig into the weeds, our estimates for household formation is derived from the Current Population Survey which when compared to the Housing Vacancy Survey seem conservative. Further, the improving labor market will act as an ongoing stimulus to household formations. 

Although low mortgage rates have been with us for years, what is important is that credit standards have eased with respect to FICO scores and down payment requirements have been reduced. To be sure we are not going back to the “wild west” lending standards of 2005, but compared to 2010, and yes early 2014, mortgage credit conditions have decidedly eased. Moreover, we do not believe that higher mortgage rates will meaningfully cut into housing activity until 2017 as a rise in rates will initially hasten buyers into the market out of fear that rates will go much higher. Timewill tell whether or not this assumption is too heroic.