During the American Architectural Manufacturers Association’s (AAMA) 76th Annual Conference, economist Dr. Esmael Adibi discussed the continued growth of the U.S. housing market, namely the expected 3.5 percent increase of home prices in 2013. However, he notes overall economic growth will remain weak.

“Our model points to a continuation of the recovery for a fourth straight year in 2013,” Adibi said. “Overall growth will remain weak, however, with real Gross Domestic Product forecasted to increase at a relatively slow rate of 2.1 percent.”

According to Adibi, the following factors affecting home prices are favorable for a market recovery: increase in jobs/decrease in unemployment, housing affordability, unsold inventory and consumer expectations. Adibi’s forecast for the housing market is in line with the National Association of Homebuilders’ (NAHB) recent reports of a surge in the demand of new-home sales. NAHB reported a nearly 16 percent increase in new-home sales for January to a seasonally adjusted annual rate of 437,000 units.

Additionally, Adibi is forecasting a significant increase in housing starts. “We are now calling for housing starts to increase from 765,000 units in 2012 to 968,000 units in 2013, an increase of 13.4 percent.”

Adibi also predicts strong growth in nonresidential investment. “Our forecast calls for real nonresidential investment growth of 8 percent in 2013, which represents an additional $120 billion in spending,” he said. “The capacity utilization rate is nearing 80 percent, indicating that manufacturers need additional plants and equipment.”

Despite the positive indicators for housing recovery, economic challenges from 2011, namely the European debt crisis, unrest in the Middle East/oil prices and the U.S. deficit, are impacting GPD growth. However, Adibi emphasized that the biggest threat to our economy is “governments behaving irresponsibly and not allowing private investors to do what they need to do.” Because of recent economic uncertainty, such as the fiscal cliff and impending sequester, private investors are less likely to spend money on projects that could potentially stimulate the economy and housing market.

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About the Speaker

Dr. Esmael Adibi is the director of the A. Gary Anderson Center for Economic Research and Anderson Chair of Economic Analysis. Adibi’s research interests center on analyzing key economic indicators for the U.S. and California economies.

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