Bank of the West US Outlook Report for November 21, 2014

The Housing Sector Healing Continues

Housing market indicators, released this week, point to a housing sector poised to reaccelerate in 2015. Mortgage purchase applications, homebuilder sentiment, building permits, and existing home sales all had better than expected gains.

The homebuilders’ sentiment gauge by the National Association of Homebuilders (NAHB), traditionally a good leading indicator of housing activity, rose to 58 from 54 in October, the second highest reading since November of 2005.  Improving economic conditions, a post-recession high for consumer confidence, and a low interest-rate environment are reinforcing this optimistic sentiment among 330 developers surveyed by NAHB.

Homebuilder confidence in the West, which was knocked down earlier this year by affordability issues, lack of buildable land and rising construction costs, appears to be back on track.  With improving labor market conditions, slowly recovering real personal incomes, and easier access to credit, demand for homeownership will grow. However, the rental market is expected to remain historically tight with steady growth of population and increasing number of older households, creating additional demand for multifamily housing construction in near and medium terms.

We project total private housing starts to rise to 7.1 percent this year and 12 percent in 2015 to an average 1.12 million units as the labor market recovery continues and more people qualify for mortgages. We still need to see household formation rebound during this expansion. Once it does, demand for homeownership will be even greater.

To find out more, check out this week’s US Outlook Report.

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