An intelligent analysis of 2013 forecasts for the hardware and building material industries must begin with the recognition of a term that has entered the lexicon of economic forecasting and business predicting.
The term is "head fake."
Referring to economic indicators that point in the wrong direction, or a forecast that misses its mark, the forward-looking head fake has been a fact of life for the home improvement and building material industry in recent years. In the spirit of full disclosure, HCN has facilitated several of these head fakes, including our own headline from a 2007 article anticipating "A Soft Landing" for the housing market, which at the time was experiencing a slight dip.
While hindsight is 20-20, the industry now looks ahead with the principle of "regression to the mean," lifting metrics that have been stuck near record lows. The million-housing-starts mark is almost within reach, and warnings about material scarcity for a growing demand sound increasingly urgent.
Against this backdrop, HCN offers the following pages of forecasts from those who are paid to know best. One of the forecasters is NAHB chief economist David Crowe, who described the challenges facing those who look into the future: "If I'm right, nobody will remember. But if I'm wrong, everybody will remember."
Either way,HCNwill remember, because we have the forecasts written down. We begin with starts.
2013 Forecast: 940,000
"If you haven't already seen it, the builders are feeling better," said Crowe, during a presentation at the International Builders' Show.
But aren't these guys at the NAHB the eternal optimists? Hold that thought. In late 2011, the NAHB's 2012 forecast called for 709,000 housing starts for 2012. They were actually 10% under the actual full-year figure of 780,000 as reported in January 2013 by the U.S. Census Bureau.
The NAHB forecast for 2013 is a 21.5% increase to 940,000 starts. Single-family starts are expected to increase 22% to 535,000.
The NAHB's optimism is supported by its homegrown metric known as the Improving Markets Index. The association defines an "improving market" as one that shows growth for at least six months in all three of the following: single-family building permits, home prices and employment. By the NAHB's tally, there were 12 markets that made the list when the measurement was introduced in September 2011. In January 2013, there were 242 markets.
"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.
But before you bet the house on a 20% increase, there are some wild cards to consider. Crowe and others point to tight mortgage lending conditions, inaccurate appraisals, rising materials prices and a declining inventory of buildable lots as challenges to growth. And that's not counting unforeseen roadblocks on the federal policy front, among them being possible changes to the mortgage interest deduction.
2013 Forecast: building material prices
Source: Builders surveyed by NAHB
Looking into 2013, this year's No. 1 concern among builders is "building material prices."
That's a big change from the previous year's NAHB builder survey, when "building material prices" ranked ninth, and the No. 1 problem was "concern about employment/ economic situation."
What will keep builders awake at night? Continuing down the list of anticipated problems for 2013, builders cite: gridlock in Washington, D.C.; concern about economic situation; regulation of banks; inaccurate appraisals; difficulty qualifying buyers for mortgages; attempts to limit the mortgage interest deduction; and bringing up the rear, cost/availability of labor.
2013 Forecast: 8.1% growth
Source: Portland Cement Association
Improving underlying economic fundamentals, the existence of large pent-up demand balances, and the diminishment of economic fiscal cliff uncertainty will combine to result in strong growth rates in 2013 and an increase in cement consumption, according to the Portland Cement Association (PCA).
The group forecasts an 8.1% growth in cement consumption in 2013, significantly higher than the tepid growth projected in its fall 2012 report. The upward revisions reflect adjustments made in light of the recent fiscal cliff accord, recognition of stronger economic momentum and markedly more optimistic assessments regarding residential construction activity. The January report marked 2012 consumption at 78.5 million metric tons, an 8.9% gain compared with 2011.
"Growth in 2013 cement consumption will be largely driven by gains in residential construction," PCA chief economist Ed Sullivan said. "Housing starts should reach nearly 950,000 units, with single-family construction near 700,000 starts during 2013. We see starts hitting the 1 million mark in 2014 or 2015."<