LAS VEGAS – (Realty News Report) – Fueled by robust local economies, strong population growth and historically low interest rates, Houston and Dallas are expected to lead the nation in new single-family home starts this year.
Economists speaking at the International Builders’ Show in Las Vegas said single-family starts should continue a gradual upward trend in 2020.
Frank Nothaft, Senior Vice President and Chief Economist at CoreLogic, reported that Houston and Dallas each averaged at least 30,000 new home sales between October 2018 and September 2019. He said those cities were followed by Atlanta, Phoenix and Austin, which each averaged at least 15,000 sales in the same period.
Nothaft joined NAHB Chief Economist Robert Dietz and David Berson, Senior Vice President and Chief Economist at Nationwide Economics, in expressing a generally positive outlook for residential real estate in Texas and across the United States for 2020.
“The housing market is entering the year with a great deal of momentum from 2019,” Nothaft said. “This is the first time in post-World War II history that unemployment and mortgage rates are both below 4 percent. That will help fuel demand.”
The economists forecast national home prices to rise about 4.8 percent in 2020 and noted that recession risks had diminished over the past year. They also expect interest rates to remain low for an extended period.
The National Association of Home Builders (NAHB) projects U.S. single-family starts will increase more than 3 percent from 2019, reaching roughly 920,000 units in 2020. That growth is expected to be driven by steady demand resulting from solid job gains and low mortgage rates.
“Low resale inventory, favorable mortgage rates, historically low unemployment and accelerating wage growth are driving builder sentiment and point to single-family production gains in 2020,” said NAHB’s Dietz. He cautioned, however, that builders continue to under-build because rising construction costs, excessive regulation, a chronic labor shortage and a lack of buildable lots are constraining more robust growth and creating affordability headwinds.
Dietz noted that 2020 housing starts remain well below the 1 million to 1.1 million annual units NAHB considers necessary to meet long-term demand.
NAHB expects multifamily starts to stay relatively steady at about 383,000 units in 2020. Currently, roughly 93 percent of multifamily units are built for rent and 7 percent are built for sale, compared with a historical split closer to 80 percent rental and 20 percent for-sale.
New-home sales are forecast at about 708,000 in 2020, an increase of 2.5 percent from the prior year. If realized, this would be the first time annual new-home sales exceed 700,000 since 2007.
“Markets with good affordability, strong employment and appealing outdoor amenities saw the largest gains in new-home sales over the past year,” said CoreLogic’s Nothaft. “Home prices and rents are expected to outpace inflation in most areas. Nationwide, home prices are anticipated to rise roughly 4.8 percent in 2020, while single-family rents are forecast to increase around 3 percent.”
David Berson of Nationwide Economics said the interest-rate environment should remain supportive of homebuilding and homebuying, with low rates likely to persist for several years. He pointed to slower productivity growth and modest labor growth as factors that have kept trend GDP growth near 2 percent since the Great Recession.
Other elements keeping rates lower include long-term Treasury yields near historic lows and inflation running below the Federal Reserve’s 2 percent target. Those conditions help maintain mortgage rates at unusually low levels.
“Given the historically low supply of homes for sale relative to the number of households, new home construction is the primary channel to meet demand,” Berson said, adding that 2020 should be a favorable year for new construction.
Persistent headwinds remain, including higher labor costs and a shortage of skilled workers, which continue to challenge builders and limit the pace of construction.
Jan. 22, 2020 Realty News Report Copyright 2020
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