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Economists at NAHB’s Builders’ Showcase Discuss Industry Trends

Economists for the ""National Association of Home Builders"":http://www.nahb.org/default.aspx (NAHB), ""Freddie Mac"":http://www.freddiemac.com/, and ""Nationwide Insurance"":http://www.nationwide.com/ agree that the housing recovery is well-positioned to pick up momentum in 2013--assuming Washington doesn't drive it off the rails.

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Speaking at the NAHB's ""International Builders' Show"":http://www.buildersshow.com/Home/ in Las Vegas, chief economists David Crowe (NAHB), David Berson (Nationwide), and Frank Nothaft (Freddie Mac) talked about the trends the housing industry can expect to see and the potential threats that may impede the recovery.

""Nearly every measure of housing market strength--sales, starts, prices, permits and builder confidence--has been trending upward in recent months and we expect to see gradual but steady growth along these lines in 2013,"" Crowe said.

The recent high rate of price growth (nearly 6 percent annualized over the past 10 months) has been especially encouraging, Crowe said, since it acts as a ""trigger for demand to return"" as potential buyers see more reason to be optimistic about their investment.

He also pointed to today's historically low mortgage rates, strong housing affordability, rising household formations, and NAHB's growing Improving Markets Index as positive signs for 2013.

Setting the 2000-2003 period as a baseline benchmark for normal housing activity, Crowe reported that multifamily production (which has posted a 273 percent gain from Q4 2009 to Q4 2012) is expected to reach normal levels by 2014. The single-family market has further to go--it was estimated to be at 44 percent of normal production in Q4 2012--and is expected to be at 70 percent of normal by the end of 2014.

In total, NAHB forecasts 949,000 total housing starts in 2013, up 21.5 percent from 781,000 in 2012. Single-family starts are expected to rise 22 percent to 650,000 in 2013 and an additional 30 percent to 844,000 in 2014. Meanwhile, multifamily starts will rise 22 percent to 299,000 in 2013 and another 6 percent to 317,000 units in 2014.

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Crowe warned, however, that the challenges currently facing builders--including prohibitively tight mortgage lending conditions, inaccurate appraisals, rising materials costs, and a decline in buildable lots--may throw those numbers off.

However, builders continue to face several challenges, including prohibitively tight mortgage lending conditions, inaccurate appraisals, rising materials costs, and a decline in buildable lots, Crowe warned.

The continuing gridlock in Washington over fiscal belt-tightening also presents a threat to consumer confidence and future housing demand, he said.

Berson echoed Crowe's concerns about the government's budget woes, saying that despite the recent strides made to protect the fragile economy, it's not too soon to rule out the chance that a policy stalemate could trigger a downturn.

Looking ahead, Berson projected GDP growth of 2 percent to 2.5 percent in 2013, with slower first-quarter growth in response to unresolved spending issues. If, however, a full spending sequester is triggered, 2013 growth could fall between 1 percent to 2 percent.

As regulatory agencies continue to hand down mortgage rules, Berson said a major concern is that lending could become even more restrictive.

""The problem is mortgage lending standards are way too tight,"" he said. ""If we were at a scale of nine or 10 in 2005-2006, we are at a two today. We want to be around a five.""

Nothaft said that those who do qualify for credit should be able to afford it more easily with mortgage rates so low. He predicted 30-year fixed rates will stay below 4 percent through the end of 2013, drawing more interest from prospective buyers.

""An important stimulant driving housing demand has been declining mortgage rates,"" Nothaft said. ""These are the lowest rates we have seen in 65 years.""

Nothaft also issued some of his own market predictions: He expects the refinance boom for single-family homes will continue this year but gradually start winding down. Meanwhile, purchase originations will trend higher due to a projected 8 percent increase in home sales this year.

All in all, however, Nothaft said he expects overall mortgage originations will fall 15 percent in 2013.

On the subject of home prices, Nothaft noted that prices increased 4 percent year-over-year in September, according to Freddie Mac's House Price Index. The improvement was also widespread, occurring across 42 states.

For 2013, Nothaft forecast prices nationwide to rise 2 to 3 percent, with low inventory holding off other downward price pressures.