Outlook: New Home Construction to Climb in 2016, Due to Strong Demand

With the housing market collapse fully in the rear-view mirror, home buyers are flocking to new construction at a pace we haven’t seen in a while. And the market will probably only heat up further in 2016.

A recent report by the National Association of Home Builders (NAHB) forecast strong growth for the housing market in general, and for new home construction in particular. The report was issued at the end of October and included an outlook from NAHB Chief Economist David Crowe.

According to the report, steady employment and overall economic growth will continue to strengthen the U.S. housing market in 2016. Pent-up demand for housing and low mortgage rates are also a boon for the real estate market.

But that doesn’t mean it’s all smooth sailing for the industry. Challenges lie ahead. Specifically, a limited availability of lots and labor could curtail new home construction in 2016. Rising material costs are also impeding “a more robust recovery,” according to NAHB.

Forecast: Single-Family Home Construction to Grow in 2016

The builder group is predicting that we will end 2015 with 719,000 single-family construction starts. That’s an increase of 11% from the number of homes built last year. Looking even further ahead, they have forecast an additional 27% increase in single-family starts for 2016.

While the nation’s housing recovery varies from state to state, and from region to region, overall the market is improving. This is according to NAHB Senior Economist Robert Denk. Many of the issues that arose during the real estate collapse seem to have faded as well.

“We’ve gotten to the point in the recovery where we no longer have problems that came with the housing bust,” said Denk. “It now is really a matter of housing markets reconnecting to the fundamental drivers, and that is employment.”

He added that single-family new home construction has rebounded in all regions of the U.S., and that real estate foreclosures have dropped back down to normal levels.

Biggest Recoveries: Louisiana, Montana, Texas, Wyoming

According to the NAHB report, the biggest housing recoveries have occurred in the so-called energy states. These include Louisiana, Montana, North Dakota, Texas and Wyoming. But the recovery is certainly not limited to these states.

Even the states hit hardest by the housing and foreclosure crisis — Arizona, California, Florida and Nevada — have experienced big gains in home prices.

In another forecast for new home construction, the association predicted that by the end of 2017 the “top 40% of states will be back to 99% or more of normal production levels.”

Unemployment rate chart
U.S. unemployment rate 2005 – 2015 (enlarge)

The job market has a lot to do with NAHB’s positive outlook for new home construction in 2016. The nation’s jobless rate has fallen more or less steadily since spiking at 10% during 2009.

When last measured, in September 2015, the U.S. unemployment rate had fallen to 5.1%. The chart on the right shows the rise and fall of the jobless rate over the last 10 years or so.

With more jobs to go around, there are now more people in a position to buy a house. This increases housing demand for both resale and new construction homes.

“This recovery is all about jobs,” said Chief Economist David Crowe. “If people can get good jobs that pay decent incomes, the housing market will continue to move forward.”