Inventory Shaping the 2018 Housing Market
A lack of existing home inventory continues to drive growth for residential construction and sustain strong home-builder confidence — now hovering near a two-decade high. The limited inventory currently represents only a 3.4 months’ supply, which is pushing up prices for homes and intensifying the demand for construction activity.
However, limited access to labor and rising prices for building materials continue to inhibit the expansion of construction. For example, there are roughly 250,000 unfilled positions in the construction sector, which is near a post-recession high. Nonetheless, single-family starts increased at a modest 2.9% rate, though total housing starts declined by 7% due to a significant (26%) decline in the volatile multifamily market.
As an indication that macroeconomic conditions remain promising, the Federal Reserve recently increased the federal funds rate for the first time in 2018 to a range of 1.5% to 1.75%. We expect as many as three additional rate hikes later this year, followed by three more in 2019. Federal Reserve Chair Jay Powell noted that expectations for economic growth have strengthened in recent months and the unemployment rate is expected to decline — the downside of which could mean even tighter access to labor for builders. The new monetary policy chief also said that while asset prices for equity and commercial real estate are elevated, the gains in housing prices are due to other factors, which is consistent with NAHB analysis.
–NAHB Chief Economist Robert Dietz