The number of new family homes being built in the United States is expected to gradually rise this year and next after dipping slightly at the end of 2016.
Last year, the National Association of Home Builders projected 1.16 million total housing starts in 2016, which was up nearly 5% from the previous year. Now NAHB is forecasting a 10% increase for 2017 and a 12% rise for 2018.
Data from the US Department of Housing and Urban Development showed that family housing units fell 4% to a seasonally adjusted rate of 795,000 in December but it was still the fourth highest since the recession.
‘Builders remain confident and we expect further growth in the single family market in the year ahead. We expect that 2017 will be another year of gradual, steady improvement in the housing market,’ said NAHB Chief Economist Robert Dietz.
‘Multifamily starts have been volatile in recent months, but should level off as supply meets demand. Meanwhile, single family production continues to gain momentum but is limited by supply side headwinds,’ he added.
Regionally in December, combined single and multifamily housing production rose 31.2% in the Midwest, 23.% in the West and 18.5% in the Northeast while the South posted a loss of 1.4%.
But Dietz pointed out that there will be pressing challenges as builders look to increase their supplies this year. ‘While positive developments on the demand side will support solid growth in the single family housing sector in 2017, builders in many markets continue to face supply side constraints,’ he said.
Indeed, some 64% of builders reported low or very low lot supplies and Dietz added that the industry needs to recruit more workers and get more land in the pipeline, but it will take time.
Builders are particularly facing challenges building $200,000 entry level homes. Regulatory requirements comprise nearly 25% of the cost of a new home, which has made construction on lower cost homes more difficult, Dietz explained.
Nevertheless, town home construction, which tends to appeal to younger buyers, is already showing significant growth, comprising 12% of all single family starts. ‘
According to David Berson, chief economist of the Nationwide Mutual Insurance Company, higher mortgage rates will be offset by stronger wage gains and job growth, which suggests that housing demand will increase this year.
He pointed out that many metro areas nationwide are seeing solid job growth, dropping mortgage delinquency rates, and strong housing price gains and demand has been exceeding supply and it is likely that will continue 2017.
‘That could put more pressure on home prices, however. If there aren’t enough homes on the market, that will be a problem. Price gains need to moderate,’ Berson explained, adding that prices gains of 6% or more are not sustainable.