A few notes from the December 2013 year-end Housing Commentary, by Urs Buehlmann of Virginia Tech and economist Al Schuler.
Though indicators declined in December, the 2013 year-over-year numbers were up, including single-family starts up 7.6 percent; and new single family house sales up 4.5 percent. Private residential construction spending increased 18.3 percent.
The report notes that the economy continues to get better, and is leading the recovery and housing, rather than the other way around.
The report stated that the near-term outlook on the U.S. housing market was unchanged, with a sluggish economy, lack of well-paying jobs and declining real median annual household incomes all barriers to a more robust recovery.
But, for 2014 there are a number of reasons the economy will do better: stronger dollar, job improvement from GDP growth, and low inflation.
The job situation is getting better, although about a quarter of new jobs are part-time with few benefits.
Long-term issues in Washington continue to be tax reform, entitlements and debt.
Labor force participation continues to fall, to 62.8 percent in December 2013, the lowest rate on record. The authors of the study noted that there are too many incentives for people not to work.
The new normal may include a higher share of the overall housing market for multifamily housing.
House price increases are encouraging builders to start more homes. Higher prices are also needed to slow foreclosures.
New housing formations are exceeding starts, creating demand that exceeds supply.
Also, remodeling is expected to pick up as confidence improves, prices increase and the economy picks up.
Overall, the authors of the study expect to see 3 percent GDP growth in 2014. Houses in the future are likely to be smaller, with a larger percentage of renters and more people moving into the city. Overall, housing will continue to improve, with jobs being the single most important factor to better housing demand.
The reports are a free service of Virginia Tech. Past housing reports are available at http://woodproducts.sbio.vt.edu/housing-report/.