According to a document released by NAHB, nearly every panelist agreed that housing construction in 2003 will likely equal or even slightly surpass last year’s 1.7 million units, with single-family activity remaining especially strong, and multi-family production receding only slightly. One reason for this cited by the attendees of the conference is the belief that the Federal Reserve is unlikely to increase interest rates until late in the year, or possibly not until early next year. As a result, long-term mortgage rates in 2003 will be about half a percentage point lower, on average, than they were in 2002, climbing only slowly from their current 5.8 percentage range as the year progresses, the conference estimates.
David Seiders, chief economist for NAHB, notes that the skilled-labor crunch and building material prices have both eased for home builders as a result of a substantial dip in non-residential construction. Yet, while housing has contributed to growth in the nation's economy through the past recession and into the current period, Mr. Seiders says that one question for the economy is what will happen when housing activity tapers off and is no longer a "growth engine" for the Gross Domestic Product. He notes that the housing component of GDP grew 12 percent in this year's first quarter—faster than any other part of the economy. "Residential fixed investment accounted for fully one-third of total GDP growth in 2003's first quarter, even more than the substantial support it provided in 2002," Mr. Seiders says.
Frank Nothaft, chief economist for Freddie Mac, says that fiscal and monetary stimulus will push economic growth toward an annual rate of 4 percent in the second half of 2003, up from about 2 to 2.5 percent in the first half. According to Mr. Nothaft, mortgage rates, which have been at their lowest levels in more than 40 years, will continue to be "a powerful stimulant to the housing sector." He also predicts that 30-year, fixed-rate mortgages will average between 5.75 percent and 6.25 percent throughout this year.
Mr. Nothaft notes that the current refinancing boom should abate as interest rates elevate. According to the results of the conference, there are at least a couple more good months in store for refinancing. As Mr. Nothaft explains, refinancing an average U.S. $130,000 to $140,000 home loan last year reduced monthly payments by $100. "That extra $100 per month in a family's pocket is as good [a stimulus to spending] as a tax cut," he says, adding that, in cash-outs from refinancing last year alone, home owners took away an extra $90 billion from the settlement table.
Panelists forecasting the direction of home prices at the Construction Forecast Conference note that the annual rate of house price increases is tapering off in most parts of the country. Mr. Seiders said that, from a peak of about 9 percent nationally at the beginning of the 2001 recession, annualized increases have receded to some degree and should decelerate a bit further, eventually settling in at the 4 to 5 percent range. He added that media speculation about house-price "bubbles" will also likely fade as the economic recovery progresses.
Mr. Nothaft says that housing has none of the characteristics typical of assets that can experience sharp price declines. Such assets tend to be purely for investment purposes, offer highly speculative returns, can be purchased or traded at low transaction costs, and are held for a relatively short period of time—none of which characterizes the typical American home, he adds.
Even if the currently robust housing market loses some steam this year, Stan Duobinis, NAHB director of forecasting, says that single-family home sales and production will post gains in more than half of all states—primarily in the South and Southwest. Likewise, the multifamily market will expand at least slightly in 26 states, particularly California, Florida, and Nevada.