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Economic Forecasts

Strong Start for Housing in 2017

Kiplinger's latest forecast on housing starts and home sales


GDP 2.1% growth in ’17, following 1.6% in ’16 More »
Jobs Hiring pace should slow to 160K/month in '17 More »
Interest rates 10-year T-notes at 3% by end '17 More »
Inflation 2.5% in '17, up from 2.1% in '16 More »
Business spending Rising 3%-4% in ’17, after flat ’16 More »
Energy Crude oil trading from $55 to $60 per barrel in May More »
Housing Single-family starts up 10% in '17 More »
Retail sales Growing 4.2% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

Single-family home (SFH) construction started the year on solid footing. Total housing starts were down 2.6% in January to a seasonally adjusted annual rate of 1.246 million. Single-family starts, however, posted a slight monthly increase, rising 1.9% to a seasonally adjusted annual rate of 823,000. Multifamily construction was the reason for the drop in total starts, with ground broken on new projects down 7%. Despite the supply challenges faced by home builders, we expect total housing starts to increase 6.7% this year. The need for inventory should underpin SFH construction. We are forecasting starts in this category to grow 10.4% in 2017.

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

Home sales also had a good start in 2017, continuing their momentum from last year. Existing-home sales rose 3.3% from December, reaching the fastest pace since February 2007. January’s existing-home sales reached a seasonally adjusted annual rate of 5.69 million. But the rapid pace isn’t likely to be sustained in the coming months, as borrowing costs rise and inventories remain low. Inventory is down 7.1% from a year ago, with 20 consecutive months of year-over-year declines. One reason inventories remain low is that many SFHs and condos were converted to rental units following the housing bust. New-home sales in January were reported at 555,000 on a seasonally adjusted annual basis, up 3.7% from the previous month. Despite the increase, new-home sales in January were below the trend shown in recent months, and indicate that higher mortgage rates after the presidential election had an impact on new-home sales.

See Also: All Our Economic Outlooks

Credit availability is showing signs of a modest improvement. Total mortgage originations jumped to $617 billion in the fourth quarter of 2016, the biggest quarterly increase since 2007. Similarly, the Federal Reserve’s Senior Loan Officer Survey indicates that banks continue to ease lending standards for mortgages. Despite the increase in originations, loans are still going primarily to people with higher credit scores. Slightly more than half of originations in the fourth quarter were to households with scores above 760, according to data from the New York Federal Reserve’s Consumer Credit Panel. The median credit score for mortgage origination was 763 in the fourth quarter, an increase from 753 in the fourth quarter of 2015.

Low inventories, rising mortgage rates and modest wage growth should drive price gains in 2017. The CoreLogic Case-Shiller National Home Price Index rose 5.8% in December from a year ago. Year-over-year price growth has remained above 5% since September across the nation. Rising mortgage rates should eventually put a damper on price growth, but this isn’t likely to happen this year, as low inventory continues to push prices up in many metro areas.