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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 2.6% pace in '18, up from 2.2% in '17 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 2.1% in '18, up from 1.9% in '17 More »
Business spending Rising 3%-4% in '17, after flat '16 More »
Energy Crude trading from $50 to $55 per barrel in February More »
Housing Existing-home sales up 1.3% in '17 More »
Retail sales Growing 3.8% in '17 (excluding gas) More »
Trade deficit Widening 6% in '17, after nearly flat '16 More »

The housing market will continue to grow in 2018 roughly at the same rate as in 2017. A moderate pace in construction of new single-family housing and the low turnover of existing homes means inventories will stay lean. Price growth will slow down just a bit next year as mortgage rates rise a tad.

Total housing starts will average 1.27 million units in 2018, a 5.6% increase from 2017 (we expect them to average 1.203 million units this year). Single-family starts will rise 8.2% next year. The increase would have been larger, but builders continue to cope with the scarcity of ready-to-build lots, skilled workers and credit. Multifamily starts will stabilize after cutbacks caused by apartment overbuilding in some metro areas. A slight pickup in rents recently indicates that demand for apartments remains steady.

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

Home sales should trend steadily upward in 2018. We expect new-home sales to rise 9.8% next year. Those sales rose 6.2% in October and are on track for wrapping up a solid year. New-home sales are still well below their historical average, leaving room for improvement in 2018. Look for existing-home sales to rise 1.6% next year, totaling 5.6 million — the second straight year of modest growth linked to tight inventories. These sales should end 2017 at a 5.51 million pace — the best since 2006, but only 1.3% above 2016.

The S&P CoreLogic Case-Shiller National Home Price Index rose 6.2% in September from a year ago. Home prices increased this year amid low mortgage rates, high employment and few existing homes on the market.

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Home prices will keep rising next year at a 6% rate. Eventually, higher mortgage rates will dampen price increases. But that will happen gradually, since low inventories will create seller’s markets in many metro areas. We also expect price increases to cool off throughout 2018 as buyers become unwilling to dedicate such a large chunk of monthly earnings to housing.

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