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Economic Forecasts

Tight Inventory Spurs Prices

Kiplinger's latest forecast on housing starts and home sales


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 1.6% 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 1.3% in '17 More »
Retail sales Growing 3.8% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

Look for a slight pullback in housing starts over the next few months. Total housing starts fell 0.8% in August, dipping for the second consecutive month, owing entirely to a decline in multifamily construction, which fell 6.5%. Single-family construction rose 1.6% and is up 8.6% in the first eight months of 2017, compared with the same period a year ago. Hurricanes Harvey and Irma will likely negatively affect all starts, as building resources shift to rebuilding and repair efforts in the affected areas. Home builders can’t ramp up construction because of a shortage of skilled workers and an increase in development costs, including higher land prices and more burdensome land regulations.

New-home sales will continue at a healthy pace, despite taking a breather in August. They were reported at a seasonally adjusted annual rate of 560,000 units in August, a 3.4% decline. Nationally, the Houston metro area accounts for about 5% of new-home sales, and those may have been affected by Harvey. Prices have constantly risen this year, indicating lean inventories and robust demand in many markets.

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

Price growth for existing homes picked up again in July, after several months of slower gains. In July, the S&P CoreLogic Case-Shiller National Home Price Index rose 5.9% from July 2016, snapping a four-month slow streak. A competitive market with limited supply has allowed sellers to boost asking prices.

Existing-home sales will continue to decline because of low inventory. They fell 1.7% and are just 0.2% above August 2016. Harvey and Irma likely pulled down sales in the South as buyers couldn’t close on homes already under contract in the last week of August (sales are tallied at closing). Housing inventory has fallen for 27 consecutive months, a trend likely to persist for the remainder of 2017.