In the News – Strong Start for Housing in 2020

In the News – Strong Start for Housing in 2020

Economic and housing data reveal a strong start for the year, as low interest rates are supporting housing demand and overall economic growth. Employment growth exceeded expectations with a 225,000 gain in January. While the unemployment rate edged up to 3.6%, that increase was actually a positive indicator that more people were looking for work. Such improvements in labor force participation are key to solving labor challenges. After a weak year of residential construction labor market gains, home builders and remodelers added more than 20,000 jobs in January, a sign of increased sector expansion.

Consistent with the labor market data, home builder sentiment, as measured by the NAHB/Wells Fargo HMI, remained strong at a level of 74 in February. Single-family construction in January was solid, with the three-month moving average now above an annual pace of 1 million units. Moreover, single-family permit volume has been rising since last spring, and with a 6% gain in January, additional construction is expected heading into this spring. Multifamily construction is also strong, with a 557,000 annualized rate for the start of the year. Apartment construction should stabilize in the months ahead. Overall, construction in December and January was accelerated by warm weather, and though a slight reduction in future months is likely, the pace is still expected to return to a solid growth trend.

With housing demand strong and the industry expanding, the limiting factors on construction volume are those that frustrated the industry during the years prior to the housing soft patch in late 2018 and early 2019. According to NAHB surveys, the top challenge cited by 85% of home builders in 2020 will again be the cost/availability of labor. Tied for second place, as noted by 66% of builders, are lot availability and building material price concerns.

–NAHB Chief Economist Robert Dietz

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