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Thursday, January 19, 2012

Lawler: Housing Forecast for 2012

by Calculated Risk on 1/19/2012 05:26:00 PM

From economist Tom Lawler:

At the beginning of 2011, the “consensus” forecast for total housing starts was in the 690,000 to 700,000 range, with most analysts looking for an increase in both Single Family (SF) and Multifamily (MF) starts. Early last year one well-respected analysts who regularly surveys SF builders said that on average builders planned to increase SF starts by 15-20% in 2011. As I noted at the time, however, such an increase seemed highly unlikely given new and existing inventories, distressed sales, and pricing relative to where builders were willing to sell homes. It turned out, of course, that new home sales in the early months of last year were “quite disappointing” in aggregate, and builders in aggregate quickly changed their “plans.”

MF starts, in contrast, exceeded “consensus” forecasts, as the combination of very low completion rates (completions lag starts considerably), a moderate rebound in household growth, and a shift toward more renters than buyers (both voluntary and involuntary) resulted in a sharp reduction in apartment rental vacancy rates, as well as rising rents.

While the labor market has shown some signs of improving, household growth is highly likely to be faster in 2012 than 2011, active government intervention has pushed mortgage rates to yet new lows (AND with a record low “handle”), new and existing home inventories are down significantly from a year ago, last year’s subdued housing production helped further reduce the “excess” supply of housing, and last year’s SF activity was still depressed by the earlier and ill-conceived home buyer tax credits, this year’s “consensus” forecast for housing starts in 2012 appears to be lower than last year’s forecast for 2011 – especially on the SF side!

Quite frankly, that doesn’t seem to make a lot of sense to me.

So ... just like a year ago I thought the consensus forecast for housing starts was too high, this year I believe it is too low.

Right now, my “best guess” for housing starts, new SF home sales, existing home sales, and housing completions, would be as follows.

Housing Starts and Home Sales (000s)
 Housing StartsSingle FamilyMultifamily (2+) 
TotalBuilt for SaleSFBuilt for SaleMFBuilt for SaleNew SF Home SalesExisting Home Sales

Note: My 2010 existing home sales numbers is the sum of the NAR’s NOT SEASONALLY ADJUSTED sales figures from its re-benchmarking release. In the past the NAR’s annual number always “footed” to the sum of the NSA numbers, but that was not the case when it released its benchmark revisions.

And for completions in 2012:

Housing Completions (000s)
 Housing CompletionsSingle FamilyMultifamily (2+) 
TotalBuilt for SaleSFBuilt for SaleMFBuilt for SaleMfg. Housing PlacementsTotal

CR Note: The following table shows several forecasts for 2012:

Some Housing Forecasts for 2012 (000s)
New Home SalesSingle Family StartsTotal Starts
Merrill Lynch330713
Fannie Mae336473704
Wells Fargo350457690
John Burns359 717
Tom Lawler365515740
2011 Actual302431609

CR Note: table updated on Feb 16, 2012 (Merrill's actual forecast added)