Eye on the Economy: Solid Growth for 2015

***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis.

Preliminary statistics for 2015 show it was a year of residential construction growth. Total housing starts totaled 1.11 million, up 10.8% in 2015 compared to 2014.

Total single-family starts increased 10.4% to 715,300, with all four census regions experiencing growth in single-family development for 2015. Multifamily again led the way, as multifamily starts were up 11.4% to 396,000. On a monthly basis, data for December indicate that total starts were down 2.5% to a 1.15 million pace and single-family starts were down 3.3% to 768,000.

The December data also provide evidence of ongoing supply side headwinds. The number of unused permits rose 4.9%, suggesting builders were unable to start more homes than they had originally planned. More than three-quarters of builders responding to an NAHB survey reported labor availability as their greatest concern going into 2016.

Nonetheless, builders remain positive about market conditions. The NAHB/Wells Fargo Housing Market Index (HMI) held steady at 60 in January from a downwardly revised December reading of 60. The January HMI reading is in line with NAHB’s forecast of modest growth for housing. NAHB expects growth in 2016 for the single-family, multifamily and remodeling sectors of the residential construction industry, as continued job expansion supports demand for housing.

Additional Census data reveal that new home sales experienced the best year since 2007. At a total of 501,000, growth of sales is supporting inventory expansion. For example, December data found unsold inventory increased 2.6% to 237,000 homes, the highest total since October 2009. However, this represented only a 5.2 months supply at the current sales pace.

Another issue to watch in 2016 will be the Federal Reserve’s actions with respect to monetary policy, following inaction during its January meeting. After the first short-term interest rate hike at the end of 2015, the Federal Open Market Committee announced no change in the target federal funds rate, leaving it in the range of 25 to 50 basis points. While the Fed did not raise rates at this most recent meeting, NAHB expects future rate hikes in 2016, albeit on a gradual basis dependent on the data. These expected monetary policy actions will lead to an increase in mortgage rates over the coming years.