Road to Housing Recovery: Home Prices Rising

2. Treasury debt ceiling. By late February or early March, the Treasury is expected to hit its debt ceiling. A failure to raise the ceiling would prevent the U.S. government to borrow to meet its existing legal obligations, including the issuance of monthly Social Security checks.

3. Achieve fiscal sustainability. Zandi said that federal government expenditures as a percentage of GDP is 24 percent and revenues are 17 percent. He said this seven-point gap needs to be slashed to closer to two percentage points of GDP. “We need spending cuts and tax revenues to narrow future deficits,” he said. “If we can’t do that, bad things will happen.”

Acknowledging that these challenges won’t be easy, Zandi said his forecast is based on the assumption that Democrats and Republicans will eventually strike a deal on these contentious issues because each side has much to lose. Democrats, he said, don’t want to see tax cuts for the wealthiest Americans, and Republicans don’t like the defense cuts mandated by sequestration.

If the nation has the “political will to address the fiscal issues in a reasonable way, I think we will be off and running,” said Zandi.

A gradual climb to normal

Robert Denk, NAHB’s assistant vice president for forecasting and analysis, cited a range of differences among the states in the amount of pain suffered during the recession and the progress that is being made in recovering.

The hardest hit states - such as Arizona, Florida, California and Nevada - bottomed out the furthest during the downturn and still have much ground to make up.

Meanwhile, several energy producing states - North Dakota, Texas, Oklahoma, Montana and Wyoming - will be back to normal levels of housing production by the end of 2014.

On a national basis, housing starts are projected to get back to 55 percent of normal production by the end of next year and 70 percent of normal by the end of 2014, Denk said.