Single-family starts should continue on a gradual, upward trajectory in 2020, fueled by solid job growth and low mortgage rates that will keep demand firm. That was the message, according to economists who spoke at the International Builders’ Show in Las Vegas Tuesday.

“Low resale inventory, favorable mortgage rates, historically low unemployment and accelerating wage growth are driving builder sentiment and point to single-family production gains in 2020,” said NAHB chief economist Robert Dietz. “At the same time, builders are still underbuilding as they continue to struggle with rising construction costs stemming from excessive regulations, a chronic shortage of workers and a lack of buildable lots. These affordability headwinds are impeding more robust construction growth.”

A recent NAHB report examining the last 10 years of home building found that on a population-adjusted basis, single-family construction in the 2010s operated at about half the pace of the uniform decadal rate that prevailed in the 1980s, 1990s and 2000s. This degree of underbuilding and supportive monetary policy conditions indicate that home construction will expand in 2020.

The Forecast

In a sign that the housing market continues to recover, total housing starts are expected to hit 1.3 million units in 2020, up more than 2% from last year. Single-family starts are forecast to increase more than 3% from 2019 to about 920,000 units.

On the multifamily side, NAHB is expecting starts to hold relatively steady this year at 383,000 units. Currently, 93% of all multifamily units are built for rent, as opposed to 7% that are constructed for sale.

New-home sales are projected to total 708,000 in 2020, up 2.5% from last year. This would mark the first year sales would surpass 700,000 since 2007.

Meanwhile, residential remodeling activity is expected to register a 1% gain this year over 2019, as existing home sales improve.

South and West Remain Hot Markets

Digging under the national numbers, the South and the West are regions that will lead new-home growth in the year ahead, according to Frank Nothaft, chief economist at CoreLogic.

New-home sales are rising fastest in the South. Dallas and Houston led the way, averaging at least 30,000 new-home sales between Oct. 2018 and Sept. 2019. The two Texas cities were followed by Atlanta, Phoenix and Austin, which all averaged at least 15,000 sales in the same period. Nothaft added that home prices and rents are expected to continue to outpace inflation in most areas, with nationwide home prices anticipated to rise 4.8% in 2020 and single-family rents up 3%.

“The housing market is entering the year with a great deal of momentum from 2019,” said Nothaft. “This is the first time in post-World War II history that unemployment and mortgage rates are both below 4%. That will help fuel demand.”

Low Rates but Low Inventories

Looking further at the interest rate environment, David Berson, senior vice president and chief economist at Nationwide Economics, said that rates are expected to remain low for the foreseeable future.

“Trend growth depends on productivity growth and labor growth and productivity has not picked up,” said Berson, who noted that GDP growth has averaged just 2% since the Great Recession.

At the same time, the nation has experienced a long period of slow labor growth, which slows real economic growth, he said.

Meanwhile, existing home inventories remain at all-time low levels but the number of households has been growing at a strong pace. These two factors, helped by solid job gains and low mortgage rates, are fueling housing demand.

“Given the historically low number of homes for sale relative to the number of households, there is only one outlet to meet demand—new home construction,” said Berson. “So 2020 should be a good year for new home construction.”

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