Please enable JavaScript to view the comments powered by Disqus.

Economic Forecasts

Inventories Tight as Housing Demand Grows

Kiplinger's latest forecast on housing starts and home sales

iStockphoto

GDP 2.1% pace in '17, 2.4% in '18 More »
Jobs Hiring pace should slow to 175K/month by end '17 More »
Interest rates 10-year T-notes at 2.4% by end '17 More »
Inflation 1.3% in '17, down from 2.1% in '16 More »
Business spending Rising 3%-4% in '17, after flat '16 More »
Energy Crude trading from $40 to $45 per barrel in September More »
Housing 5.5% price growth by end of '17 More »
Retail sales Growing 3.5% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

Housing demand continues to improve, but limited inventory is causing home prices to rise.

Total housing starts slipped for the third straight month in May, dropping 5.5% to a seasonally adjusted annual rate of about 1.1 million. Continued weakness in multifamily construction led May’s decline, although single-family starts were slow as well. Even with the disappointing performance, 2017 starts so far are 3.2% ahead, compared with a year ago. Shortages of skilled labor and ready-to-build lots are weighing on the industry, builders say.

New-home sales indicate that single-family home construction will continue to rise during the second half of the year. New-home sales rose a solid in 2.9% in May, and the data for the three previous months show that these sales were stronger than originally estimated. At 30,000, sales of yet-to-be constructed homes led May’s rise. By contrast, sales of finished homes rose by 4,000. Completed-homes inventory remains near an all-time low, suggesting that contractors will continue building more. If existing-home demand continues to increase along with prices, it is likely to eventually spill over to the new-home market.

See Also: A Housing Shortage Looms as Builders Can't Keep Up

Existing-home sales increased modestly in May, rebounding from a decline in April. They rose 1.1% to a seasonally adjusted annual rate of roughly 5.6 million. A shortage is holding back existing-home sales, as the available selection is limited, particularly in the lower price ranges. Listings for existing homes increased 2.4% in May, but remain about 8% below a year ago. The supply dearth means properties are on the market only for a short while before getting snapped up; more than half of homes sold in May were on the market for less than a month. It also means that many potential buyers are being deterred.

Advertisement

Despite home prices cooling off in April, they will continue climbing this year. The S&P CoreLogic Case-Shiller National Home Price Index rose 5.5% for the year ending in April, down from 5.6% in March. Despite the uptick in existing-home listings, the inventory-to-sales ratio remains low and will continue pressuring home prices upwards.

Sources: