NEW YORK (TheStreet) -- Just like last year, economists expect the economy to grow and housing construction to pick up in the New Year. But the big difference is, this year they think a strong economy will produce a housing recovery, and last year they thought it would be the other way around.
By any terms, the housing market's 2014 was a disappointment. Housing starts are on pace to be right about 1 million, up only about 7% after forecasts for as much as 30% growth this time last year, with the 5.4% 2014 gain in the Dow Jones U.S. Select Home Construction Index (ITB) badly trailing the market. Existing-home sales are still running about 500,000 a year short of the 5.5 million that are normal for a healthy market.
That's why predictions of a housing pickup this year are tinged with caveats and caution. But if the housing market does pick up enough to push new home starts 15% to 20% higher, that would add more fire to a jobs recovery that is already creating 250,000 new positions each month, including 321,000 in November.
"The market increasingly depends on fundamentals such as job growth, rising incomes and more household formation," Trulia.com chief economist Jed Kolko says. "But here's the hitch: These fundamental drivers of supply and demand haven't returned to full strength.''
At Bank of America Merrill Lynch housing maven Michelle Meyer says housing starts will rise about 20% to 1.2 million, existing-home sales will climb to 5.2 million, and home prices will rise about 3.6%. All three of those measures will remain far below where they were in 2006 if her predictions are true.
The problem isn't any secular change in young buyers' attitudes toward buying a home, Meyer and Kolko agree. A Trulia survey shows that millennials still want to buy houses: 78% say home ownership is part of their personal American Dream, up from 65% in 2011.