April 19, 2018

Expect Construction to Take Strides This Year

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Expect Construction to Take Strides This Year

The pace of new construction, which has been stagnant over the past few years, is ready to rev up.  An estimated 1.26 million housing starts are expected this year, up 13.4 percent from last year, according to the National Association of Home Builders.

Breaking into new-home construction: The Perfect Niche for the New Year 

Single-family production is estimated to reach 840,000 units, an 18 percent increase over 2015. Still, that is short of the average annual pace of 1.34 million units, which is considered a "healthy benchmark" from the 2000-2003 period for the market, says NAHB chief economist David Crowe. Single-family starts are expected to rise from 55 percent of normal production at the end of the third quarter of 2015 to 87 percent of normal production by the end of 2017.

NAHB predicts the multifamily market to continue to post rises in 2016, with an estimated 417,000 starts in 2016, up 5 percent from 2015.

"There are a number of positive indicators that provide solid evidence this will be a good year for housing and the economy," Crowe says.

Stronger employment, which is a key driver of housing demand, is evident in many metro areas, which is supporting faster household formations, says David Berson, chief economist at Nationwide Insurance. Still, Berson notes that markets with strong ties to energy production — such as Louisiana, Texas, Wyoming, and South Dakota — likely will see more muted increases in housing in the near future as low oil prices chip away at employment.

Also, mortgage rates remain low, helping to lift the market in the new year. The 30-year fixed-rate mortgage has averaged at or below 4 percent for the past year. Frank Nothaft, chief economist of CoreLogic, says mortgage rates likely will gradually rise to 4.5 percent this year, moving from "cheap to low."

Borrowers will likely see easier access to credit in 2016, which will also aid the market. "Tight mortgage credit for consumers is expected to ease slowly this year but remain relatively tight compared to 15 to 20 years ago," NAHB notes.

Builders report that their top production concerns this year include cost and availability of developed lots and labor, federal environmental regulations and policies making it harder and pricier to build new homes, and ongoing rises in the costs of building materials.

Nevertheless, builders started 2016 with firming confidence over buyer traffic and sales expectations.

"Builder sentiment is reflecting that many markets continue to show gradual improvement, which should bode well for future home sales in the year ahead," says NAHB chairman Tom Woods.

Source: National Association of Home Builders