Market Growth Forecast as Only ‘Modest’
Both new construction and residential remodeling are expected to see only modest growth in 2019, as a series of issues – including affordability – are putting a damper on more significant gains, housing analysts say. Among the key statistics and forecasts released in recent weeks by government agencies, research firms and industry-related trade associations are the following:
Mounting affordability concerns coupled with supply-side constraints will limit single-family housing output to only “modest” gains in 2019, according to economists at the recent International Builders’ Show in Las Vegas. “Ongoing job creation and solid household formations will keep demand firm, but builders will continue to grapple with supply-side headwinds that will dampen more vigorous growth,” said Robert Dietz, chief economist for the National Association of Home Builders. Specifically, Dietz said, builders are dealing with a shortage of buildable lots, rising labor and construction costs and slow growth in construction-loan activity. The Washington, DC-based NAHB is projecting housing production to rise a scant 0.8% this year, to 1.27 million units. While there is only a small likelihood of a near-term recession, risk factors are growing and economic growth is expected to slow modestly in response to trade issues, higher interest rates and diminishing fiscal stimulus, analysts said.
Spending on residential improvements will continue to grow over the next two years at a gradual pace, according to experts at IBS (see related graph, above, and NKBA Market Outlook). IBS’ sponsor, the NAHB, predicted that remodeling spending for owner-occupied single-family homes will increase 1.6% in 2019 and another 1.1% next year. “Remodeler confidence continues to remain at a high level,” said 2018 NAHB Remodelers Chair Joanne Theunissen. “Although there is steady consumer demand in all areas of the country, the biggest challenges continue to be the costs of labor and materials to meet the interest.” Although existing-home sales are down and the housing market faces labor constraints, four of six key market trends – including an aging housing stock, growth in real income and an uptick in home-equity lending – are positive for building and remodeling, according to Steve Basten, manager of building products research for John Burns Real Estate Consulting. Basten predicted that the growth rate for building products will slow over the next several years, accompanied by a trade down to smaller, lower-cost projects. Builders and remodelers, Basten said, “should go young and go old” when seeking profit opportunities, based on an expected surge in both entry-level buyers and retirees.
Existing-home sales, while weak compared to historical norms, are likely to have already reached a cyclical low, with moderating home prices and gains in total household income expected to boost housing affordability and bring more buyers to the market in the coming months, the National Association of Realtors said last month. Existing-home sales – down 8.5% from a year ago and currently at their lowest level since November 2015 – are not expected to decline further in the months ahead, according to Lawrence Yun, chief economist for the Washington, DC-based NAR. Yun noted that, while resales are down recently, lower mortgage rates “will inevitably” improve affordability conditions for prospective home buyers and “lead to more home sales” in the coming months.