Housing: Positive Growth Expected for 2016.

• Author: McCoy, Douglas M.

The single-family housing sector found its way back to stable growth in 2015, while the multi-family housing sector continued its strong run. Consumer confidence, job growth and low interest rates are the primary drivers that bring potential homebuyers to the housing market. Considering these factors, along with an important projected increase in new single-family inventory, the single-family housing market is forecasted to continue on a positive path in 2016.

For example, the National Association of Realtors forecasts that existing home sales will increase 3.5 percent from 2015 levels, and new single-family home sales will increase 29.3 percent nationally (see Table 1). Housing starts are projected to increase 17.2 percent, with single-family units increasing 23.2 percent and multi-family units up 6.5 percent. Median home prices for both existing and new homes are expected to increase 4.1 percent.

Looking closely at these numbers one sees the importance of new home sales in 2016 and the critical need for new housing starts. The excess of existing home inventory at favorable pricing, resulting from the recent economic downturn, is mostly gone. To achieve strong numbers in 2016, new inventory must be added. The U.S. is currently experiencing a housing shortage, but home builders have been cautious in bringing new homes to market even while low interest rates have persisted. The good news is that builder confidence has been "steady or increasing," according to a monthly survey conducted by the National Association of Home Builders.

The likelihood of continuing improvement in the single-family housing market in our nation's cities and towns largely depends on job growth and how wages compare to that locale's housing prices. When differentiating single-family markets across the country, it is important to remember that a key factor of mortgage qualification is a household's monthly gross take-home pay relative to its payment for housing costs (the total of the mortgage payment, real estate taxes and home insurance). Holding all other things equal, communities with positive job growth and a favorable margin between wages and housing costs are more likely to experience a more stable single-family housing market than communities with narrower house affordability margins.

Thus, a less positive trend for the housing market nationally is housing affordability. The National Association of Realtors projects a change in this index from 162 to 129 from...