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Economic Forecasts

Housing Price Growth to Cool Off Later This Year

Kiplinger's latest forecast on housing starts and home sales

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GDP 3.0% pace in '18, up from 2.3% in '17 More »
Jobs Slower job gains likely this year as labor market tightens More »
Interest rates 10-year T-notes at 3.2% by end '18 More »
Inflation 2.6% in '18, up from 2.1% in '17 More »
Business spending Up 7% in '18, boosted by expanded tax breaks More »
Energy Crude trading from $60 to $65 per barrel in June More »
Housing Price growth: 5.0% by end of '18 More »
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Trade deficit Widening 5%-6% in '18 More »

Housing starts fell in February as builders pulled back from apartment construction. Total housing starts fell 7% in February to a seasonally adjusted annual rate of 1.236 million. The decline was led entirely by multifamily construction. Single-family starts rose 2.9% from January, while multifamily starts plummeted 26.1%. Housing completions, the net number of homes added to the housing supply, increased as builders worked through backlogs. Single-family completions rose 3%, while multifamily completions increased 21.5%.

New-home sales were flat in February. New-home sales dropped 0.6% between January and February, marking the third consecutive month of declines. However, overall, new-home sales have gone up since 2011. New single-family homes on the market increased to 305,000, up 2% from January. It would take 5.9 months to sell through that inventory at today’s sales pace.

Existing-home sales regained some lost ground. They rose 3.0% in February to a seasonally adjusted rate of 5.38 million. Inventories were down 8.1% — the 33rd consecutive month of year-over-year declines. With such relatively little stock, it would take 3.4 months at the current pace to sell through it. Properties stayed on the market for 37 days in February, down from 45 days a year ago. The National Association of Realtors index of pending home sales, which tracks signed contracts on existing homes, rose 3.1% in February, indicating that the trend of rising sales will continue.

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

We think today’s 4.44% mortgage rates will hit 4.7% by the end of 2018. Higher interest rates hit first-time home buyers — who often finance more of a home’s cost than so-called trade-up buyers — especially hard.

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Expect home prices to stop jumping later this year as low inventory and higher rates dampen demand. Price growth continued its steady climb in January. The S&P CoreLogic Case-Shiller National Home Price Index rose 6.2% in January from a year ago, down slightly after a 6.3% year-over-year gain in December. Strong demand in relation to somewhat scant housing stock is driving up prices. This means that the expected slowdown in price growth will be modest.

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