By Rick Palacios Jr., Director of Research
With a lot of insight from our clients and survey participants who build and finance a large percentage of the homes built every year, we had a good year forecasting. Our clients make multi-million, sometimes billion-dollar business decisions—often relying on our forecasts for guidance. We take these forecasts very seriously and hold ourselves accountable against actual results, right or wrong. With 2016 now in the books, here is how our January 2016 forecast fared:
- Bulls-eye on total housing construction. We called for 1.16 million housing starts, exactly in line with Census full-year 2016 data. We forecasted 11% growth in single-family starts (off slightly from the actual 9% growth) and called for a 7% drop in multifamily starts (actual decline was 3%). Note that back in January 2016, Wall Street consensus called for a 17% jump in single-family construction and a 9% increase in multifamily construction—both of which were far too bullish.
- Off by 1% on new home sales. We originally forecasted 11% growth for new home sales in 2016 vs. the 12% reported actual growth. Note that in January 2016 Wall Street consensus called for +18%, and industry groups such as NAHB predicted +22%—both again too bullish.
- 4% too low on home price appreciation. At the beginning of the year we called for 3% national home price appreciation, well below the actual 7% rise in prices. In addition to supply levels that remained stubbornly tight throughout the year, lower than expected mortgage rates drove higher than anticipated price gains.
- Called it right with repair and remodeling (R&R). Our original forecast called for 7.8% R&R growth, which turned out to be in line with several big name building product companies’ growth as well as professional remodelers. Perhaps more importantly for our building product and investor clients, we were early to the game on our call for big project R&R spending to outperform. Throughout 2016, big ticket sales drove topline growth for Home Depot, Lowe’s, and Fortune Brands.
We are not economists, but we have to make assumptions on mortgage rates and job growth. Here is how we did:
- 0.4% too high, but better than consensus on mortgage rate assumption. We assumed fixed rates would rise from 3.9% in 2015 to 4.1% in 2016. Rates actually dropped, averaging 3.7% for the year; consensus called for 4.4%. Volatility in early 2016 (namely around China) coupled with June’s Brexit pushed rates down.
- 0.4% too low on job growth. We assumed job growth would moderate from 2.1% in 2015 to 1.3% in 2016. Growth did in fact slow, though not as much as anticipated, ending the year up 1.7%. Consensus called for 1.6% with Moody’s at 1.8%. Kudos to Moody’s and consensus for getting it right. Solid service sector growth coupled with sooner than expected stabilization in energy/industrial sectors helped push job growth higher than we expected.
We’re currently thinking through our 2017 forecasts and hope to have a similar message 12 months out. For those interested in learning more about our forecasts (national, regional, metro), please contact me directly at (949) 870-1244.