A few months of weak housing starts have zapped the optimism of some economists, who had expected the demand for single-family homes to boom a bit bigger after suffering from the winter doldrums last year.
And although David Crowe, the chief economist for the National Association of Homebuilders, admits housing’s showing has been “mediocre,” he said he is looking toward 2015 with what he called “good optimism.”
Here are four reasons why Crowe is confident that housing will continue its bounce back over the next year:
1. The labor market.
Unlike prior economic recoveries, when housing was the motivator, this one has relied more on job creation and economic expansion to move the country forward. While job growth has been slightly erratic—it took a hit in August, but the U.S. has created 200,000 or more jobs a month each month since March—the outlook has been positive.
“That’s really what housing is waiting for,” Crowe said during a September appearance on NAHB’s weekly broadcast of “Housing Now.” “Look at the markets. Those that have seen strong job growth have seen housing growth.”
Accompanying that job growth are higher salaries, which also move the economy forward, Crowe said.
Crowe said unemployment, which continues to fall, is not a “helpful” indicator of economic success because the large number of potential employees who have dropped out of the labor pool over frustration, to return to school or for another reason, skew the statistics.
“We haven’t brought those discouraged workers back into the marketplace yet, but it’s not getting worse,” he said, “so the employment market is going to cure itself.”
Crowe noted that some states have already matched the peak employment they enjoyed in 2007, but said the Midwestern manufacturing states, which took the greatest hit to their economies during the recession, are still struggling to recover. Still, he said, “We’re finally starting to see this revival spread to the hinterland, if you will, that had so many problems.”
2. Consumer sentiment.
Organizations that measure how much confidence consumers have in the economy agree that Americans are feeling comfortable enough to spend “more money than ever” on things they could put off buying if they wanted to—like household furnishings. The logical outgrowth of that behavior is to purchase a home or rent an apartment, Crowe said.
And consumers aren’t the only ones who are feeling good about their financial future: The confidence of businesses owners, who indicated they felt a bit shaky about the economy as recently as February, have bounced back. And home builder optimism surged in September to its highest level since late 2005, an NAHB survey showed.
“The collective conclusion,” Crowe noted: “There is a general in increase in comfort level that we haven’t seen before in this recession.” Crowe said he sees the improvement as a sign home construction could pick up in the coming months.
3. Access to credit.
Economists in all sectors agree that interest rates will gradually rise over the next couple of years. But even if they reach 6%, Crowe said, “they’re still low.”
The “real issue,” he said, is not the price of credit, but its availability. It “isn’t , ‘Can I afford a mortgage?’ It’s, ‘Can I get a mortgage?’”
Congress continues to struggle with what to do with Fannie Mae and Freddie Mac, said Crowe, who predicts that the restrictive standards imposed on would-be homebuyers by the government and the banks could soften next year, making it easier for people to qualify for mortgages.
4. Home prices.
Crowe noted that a typical American family could afford the price of more than 63% of all homes for sale—if they could get home loans.
The asking price of houses for sale shot up during the pre-recession housing boom, deflated during the bust and have begun their climb back to those 2007 levels. In fact, home prices rose almost 20% in 2013. But they started to soften this year—and that slower pace, Crowe said, will continue into 2015, due, in part, to “a little bit of waning of the hot investor demand.”