Kiplinger's latest forecast on housing starts and home sales.
By Rodrigo Sermeño, June 30, 2016 Via KipLinger.com
Low mortgages rates and more job creation will push more folks toward buying a home. But persistent challenges for home builders and robust demand will lead to thin inventories and rising prices in certain areas of the country.
Residential construction remains steady. While single-family starts rose a modest 0.3% in May, the trend is still positive and we continue to expect the construction of 812,000 single-family units in 2016, a 14% increase from last year. Builders have responded to rising demand by breaking ground on more projects this year. Total housing starts in May were 9.5% above the same month last year. Through the first five months of 2016, total starts are up 10.2% compared with the same period a year ago. Construction activity remains well below historical norms, indicating that there is still further room for improvement.
The impact on the housing market of Britain’s decision to leave the European Union could be mixed. The referendum sent yields on U.S. government debt tumbling, with the yield on the 10-year Treasury note falling from 1.75% to a low of 1.43%. Home builders have been dealing with supply side challenges, such as shortages of lots and labor, for quite some time. Builders have noted that a shortage of skilled labor was the top business challenge for them in 2015. While this remains one of their top concerns, the shortage of developed lots is emerging as the primary obstacle to home building, particularly in the West and Northeast. Builders are seeing shortages for all types of lots, but those in the most desirable locations are particularly scarce. As a result of these shortages, builders have been focusing on bigger homes. Houses with more square footage and more amenities are more profitable for builders, but they are less affordable for buyers.
Home prices are rising at a steady clip and should maintain a sustainable pace nationally. The S&P/Case-Shiller U.S. National Home Price Index rose 5.0% in April from a year ago. Portland (Ore.), Seattle and Denver continue to lead the nation in year-over-year price growth. The limited supply of homes has kept upward pressure on price growth in these metro areas.
The impact on the housing market of Britain’s decision to leave the European Union could be mixed. The referendum sent yields on U.S. government debt tumbling, with the yield on the 10-year Treasury note falling from 1.75% to a low of 1.43%. And falling yields on U.S. Treasuries are pushing mortgage rates lower. The 30-year fixed mortgage rate reached new 2016 lows, dropping to 3.48% — just a few basis points above its November 2012 record low of 3.31%. On the other hand, Brexit caused the dollar to strengthen against major currencies, making U.S. real estate more expensive for foreign buyers. This could hurt areas such as Miami and Manhattan, where foreigners have been pouring money into real estate.