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Economic Forecasts

Tight Inventory Spurs Prices

Kiplinger's latest forecast on housing starts and home sales

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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 2.0% in '18, up from 1.4% in '17 More »
Business spending Rising 3%-4% in '17, after flat '16 More »
Energy Crude trading from $40 to $45 per barrel in December More »
Housing Existing-home sales up 3.5% in '17 More »
Retail sales Growing 3.5% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

Total housing starts declined 4.8% in July because of a slowdown in multifamily construction. Multifamily starts are volatile and will likely bounce back in August, but will remain nearly 10% below last year’s average. Single-family starts have maintained their modest growth and are up 10.9% from a year ago. Despite the downturn in the multifamily category, home builders remain confident because of improving sales and strengthening demand. Developers are selling homes as fast as they can build them. Sales of new single-family homes have risen 8.6% so far this year. Single-family construction hasn’t risen in step with higher builder confidence this year, indicating that developers are still having trouble obtaining ready-to-build lots and finding skilled labor.

Multifamily completions will likely peak this year, as builders work to wrap up projects on which they’ve already broken ground. After peaking sometime in 2015, building permits and multifamily starts have moderated and moved closer to their long-term average. Since it generally takes 12 to 18 months to finish a multifamily project, completions will likely crest this year and then grow at a pace reflective of today’s slower starts and building permit issuances.

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

Existing-home sales will remain sluggish in the fall as inventory is unable to keep up with growing demand. These sales fell 1.3% in July, though they are still up 2.1% year-over-year. Inventory has fallen for 26 consecutive months and seems unlikely to quickly restock. Solid job growth and low mortgage rates are supporting demand, but lean inventory is pushing up home prices. Competition among buyers is intense, with over half of the homes on the market selling in less than a month.

Home-price growth picked up slightly in June, but it will slow down a notch during what’s left of 2017. The inventory crunch is steadily driving price growth across the nation. Those factors will likely push some potential buyers back to the sidelines, which will result in slower price growth later this year. The S&P CoreLogic Case-Shiller National Home Price Index rose 5.8% from June 2016 to June 2017. Dallas, Portland and Seattle saw the largest year-over-year gains. Detroit, Las Vegas, Phoenix and San Diego are experiencing price pressure.

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