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Wells Fargo, NAHB alters forecast for new home sector

Although the new home construction business has major challenges ahead, the sector is showing signs of life – so much so that Wells Fargo and NAHB revised their annual forecast for the market.

“Spring came early for the housing market”

According to the latest survey from the National Association of Home Builders (NAHB) and Wells Fargo1, “spring came early for the housing market,” the report proclaims. The report cites anecdotal evidence from builders and Realtors, suggesting a real estate recovery is on the way.

“Drawing definitive conclusions from the winter housing data is perilous,” the report notes. “The winter months account for the smallest proportion of the year’s housing activity, and unseasonably mild weather during the winter months can cause the data to bounce around quite a bit from month to month. The March and April data are much more important, and all indications suggest that the key spring selling season has gotten off to a solid start.”

Despite today’s report2 from the U.S. Census Bureau that construction spending slipped from January to February, the NAHB and Wells Fargo maintain an optimistic outlook.

“We have nudged our forecast for home sales and new home construction slightly higher,” the report adds, “as the spring selling season appears to have gotten off to a strong start.”

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Real estate challenges continue

“Most builders and realtors report significant gains in buyer interest and sales. Moreover, the gains are organic rather than incentive induced. Unfortunately, conservative appraisals and tight mortgage underwriting continue to undermine a large number of deals. We suspect that the undertow from these two hindrances will subside over the course of this year, as the fog surrounding shadow inventories lightens up a bit and more lenders come back to the market.”

Ultimately, the NAHB and Wells Fargo say that they expect home prices to “definitively bottom by the middle of this year, as the backlog of foreclosures finally begins clear. For properties not in foreclosure, prices have probably already bottomed, but should remain relatively low nonetheless given the competition and perceived competition from foreclosures.”

Housing will remain weak, but compared to previous years, the market will likely show signs of improvement, but a full recovery appears to be years away, particularly regarding home values which have dropped by a third since the recession hit. New home construction, however, is one of the hardest hit sectors, so improvement is likely, as permits and starts have already started to pick up, likely the reason for NAHB and Wells Fargo’s reassessment.

1Wells Fargo/NAHB report
2Census Bureau report

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Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

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