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BY: GREGORY H. LEWIS
U.S. housing starts fell 16% to 0.88 million units (SAAR) in January. We don’t read too much into this, because the weather across the U.S. was very bad in January. Moreover, starts had jumped in November-December, so the average for the previous three months is still over 1.0 million units. The decline was pretty evenly split between singlefamily and multi-family units. Beyond the first quarter, we expect starts will gradually improve through 2015.
The U.S. economic recovery will pick up steam this year. This will be accompanied by sustained 200,000+ jobs per month employment growth. Increasing employment will bolster demand for housing, and we expect both new and existing home sales will continue to increase.
Meanwhile, we will have worked off additional excess inventory of existing homes for sale. With demand increasing and existing inventory declining (when you factor in shadow inventory), builders will respond by ratcheting up starts, which we expect to hit 1.11 million units for the year.
We expect residential improvement expenditures will continue to increase, with growth averaging 4-5% in 2014-15. This strong growth is predicated on a number of factors, including increased existing home sales, the high percentage of recent distressed sales, the aging housing stock, and homeowners choosing to fix up rather than move up. Further bolstering expenditures will be the strengthening economy and employment growth. This will push expenditures up to $127.2 billion in 2014 and $133.2 in 2015. This will be the highest level since 2006 and in line with 2005 expenditures. While this is decent growth, it is still well below that of new residential construction and previous periods of recovery.
Why is this? Residential improvement expenditures will be held back by the lack of home equity, tight lending standards, and relatively slow income and employment growth.
Structural Panel Supply and Prices
We anticipate a profile similar to the first half of 2013, with markets moving higher into the second quarter before retreating as buyers step back. Even so, the expected jump in prices will be less than that seen in early 2013 as inventory levels are not as low as they were at the end of 2012, and new home construction (and product demand) is less likely to surprise buyers on the upside as it did earlier this year.