The decade-long housing boom was expected to peak in 2003 at 1.45 million single-family housing starts, the second highest level on record, before declining by low single-digit percentages in 2004 and 2005, according to forecasts by the National Association of Home Builders (NAHB).
Nonetheless, the unprecedented housing-sector growth that started in 1992 is expected to resume, and single-family starts could break current record levels in the coming decade because of demographic changes, the association said.
The forecast bodes well for continued strength in the custom-home installation market, whose rapid upward climb roughly coincided with the 1992 start of the longest uninterrupted string of million-plus, single-family starts in U.S. history. The string, which continued through 2003 for 12 consecutive years, exceeded the previous record of seven consecutive million-plus years from 1983 to 1989.
In 2004, single-family starts will dip by 4.4 percent to 1.38 million from 2003’s forecast of 1.45 million, which was up 5.9 percent from the previous year, the NAHB projected. Starts will fall again in 2005 by 1.7 percent to 1.36 million. Nonetheless, 2004 and 2005 levels will be the fourth and fifth highest on record, NAHB said.
Demographic changes support even stronger gains during the next decade, NAHB chief economist David Seiders said. Total housing starts will hit about 1.9 million on average per year (including multifamily units) during the next 10 years, exceeding the levels of the 1980s and 1990s, he said. That’s well above 2003’s forecast of 1.79 million units, which would exceed the levels of every year during the ’80s and ’90s except for 1986, when starts hit 1.8 million
The demographic changes supporting continued housing-market strength include immigration and the entry of the baby boomers’ “echo-boom” children into their home-buying years, notes the NAHB and the National Association of Realtors.
“Forecasts of the demand for new housing units over the next 10 years are based on estimates of household formations, housing replacement needs and housing vacancies, including second homes,” Seiders said. “While all these factors are subject to uncertainties, the greatest uncertainty surrounds the path of net foreign immigration. This factor was seriously underestimated by the Census Bureau in the 1990s, and net immigration apparently is running above Census expectations for the early years of this decade.”
The bureau’s “middle series” of population projections, Seiders said, “supports a forecast of 1.82 million housing units on average for the next 10 years, while the high series, incorporating a larger immigration number, supports a forecast of 2.1 million per year. Something on the order of 1.9 million seems quite reasonable.”
Single-family units traditionally account for 80 percent of all new housing starts, the NAHB noted.
Immigration will contribute to U.S. population growth of 30 million between now and the end of the decade, added a spokesman for the National Association of Realtors. Combined with “echo-boomers” entering the home-buying market, he said “demand will be fundamentally strong over the next decade.” Changes in employment and interest rates, nonetheless, could produce “temporary swings” in home starts in any given year, he added.
Based on NAHB forecasts, single-family housing starts will be the second highest on record in 2003 at 1.445 million, second only to 1977’s 1.451 million, and 2004 will be the fourth highest on record, following 1997, 2003 and 1978, in that order.
In 2004, 43 states will likely experience some decline in single-family starts, NAHB said, but “relatively large declines concentrated in the Midwest and Northeast regions” will occur.