Sales of new single-family homes should once again eclipse one million units next year, NAHB predicts. On the production side, starts of single- family units should recede by only about 3.5 percent to 1.45 million units. In the multifamily sector, a strong condo component and solid production of federally subsidized low-income rental housing will continue to provide essential support to the market while better job growth will help combat high vacancies in market-rate rental housing. As a result, NAHB projects a mere 1.5 percent decline in multifamily production to 342,000 units this year, followed by some further softening in 2004 to 327,000 units.
A central factor in the housing outlook is a favorable financing climate, which will continue to buoy home sales, remodeling activity and apartment building. NAHB expects the average rate on long-term home mortgages to remain under 7 percent throughout 2004, climbing only gradually from the current 5.9 percent range to about 6.6 percent by year-end. The cost of adjustable-rate home loans should stay historically low, largely reflecting maintenance of a 1 percent federal funds rate by the Federal Reserve for most of the year.
Strong house-price performance will also continue to emphasize the investment potential of homeownership in the new year. Nationwide, home prices appreciated by about 6.5 percent during the first three quarters of 2003 (on a year-over-year basis), and it's likely that price appreciation will be in the 5-to-6 percent range in 2004. It is worth noting that, in most cases, the home is a family's single largest investment. The household sector has about 30 percent of its assets in homes and Americans have more than $7 trillion in home equity -- a figure that is bound to grow further in 2004, the NAHB says. Solid demographics are also expected to bolster demand for new homes and apartments throughout next year and beyond. "Net household formations apparently have been running at about 1.4 million per year in recent times and should continue around that pace next year," Seiders said. A major component of that is immigration, which appears to be running around 1.5 million people per year. Seiders also noted that recent population growth has been trending above Census Bureau "middle series" projections made in 2000, and that pattern is likely to continue in 2004.