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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 2.9% pace in '18, up from 2.2% in '17 More »
Jobs Unemployment rate down to 3.8% by end '18 More »
Interest rates 10-year T-notes at 3.0% by end '18 More »
Inflation 2.5% in '18, up from 2.1% in '17 More »
Business spending Up 4% in '18, spurred by expanded tax breaks More »
Energy Crude trading from $55 to $60 per barrel in April More »
Housing Existing-home sales up 1.0%, new-home sales up 7.5% in '18 More »
Retail sales Growing 4.7% in '18 (excluding gas) More »
Trade deficit Widening 5%-6% in '18 More »

The increase in home prices in 2017 is outperforming expectations, but sales of existing homes and residential construction are falling short of the mark. The market is still strengthening, however, indicating that the recovery is on solid footing as we enter 2018.

Residential construction picked up in November after rebounding in October. Total housing starts rose 3.3% in November to a seasonally adjusted annual rate of 1.297 million. November’s gains were lifted by new single-family construction, which reached its highest level in a decade. Multifamily construction continued its downward trend. Single-family starts increased 5.3%; multifamily starts declined 1.6%.

Price growth picked up in October and will maintain a strong pace for the rest of 2017. The S&P CoreLogic Case-Shiller National Home Price Index rose 6.2% in October, compared with the same time last year. Home-price pressures remain strong as the housing market continues to face very tight inventories relative to demand. Western markets continue to see large price gains, but rapidly growing metro areas elsewhere, such as Charlotte, Dallas and Tampa, have seen some of the strongest growth this year.

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

The limited number of existing homes on the market will keep those sales sluggish. Existing-home sales jumped 5.6% in November to a seasonally adjusted rate of 5.81 million, reaching their highest level since December 2006. But if that rate holds, it would take just 3.4 months to burn through all existing-home market inventory nationally. Real estate agents generally consider less than five months of stock to be a tight market. Low inventory will likely cut into sales going forward. Stock was down for the 30th straight month in November — down 7.2%.

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New-home sales surged 17.5% in November, but sales for October, September and August were revised lower. New-home sales are volatile from month to month but have been on an upward trend for the year.

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