ORLANDO — Lots, labor and lending will shape the U.S. homebuilding industry this year, with single-family housing starts projected to rise 4.9 percent to about 1.16 million compared with the previous year, according to the National Association of Home Builders (NAHB).
NAHB Chief Economist Rob Dietz said mortgage rates are expected to average roughly 4.5 percent this year and climb to about 5.3 percent in 2018.
“Labor is a constraining factor on how much homebuilding can grow,” Dietz said at the NAHB International Builders’ Show in Orlando. “It’s one of three L’s that could limit growth — the others are lots and lending.”
On labor, Dietz noted that the share of unfilled positions in the construction industry stands around 2.7 percent, higher than the 2.5 percent vacancy rate recorded at the peak of the last building boom.
“There are many open positions in construction,” he said. “Wages in the construction industry should be rising, but we must recruit new workers. The median age of construction workers today is about 42 and rising. If I could change one thing to address supply and demand, it would be to expand the pool of workers entering the trades.”
Dietz also pointed to a shortage of lots as a constraint on single-family construction. Some 64 percent of builders report a low or very low supply of buildable lots. “That’s a legacy of the Great Recession,” he said. “After that large inventory of lots was worked off, local governments need to approve additional lots for development.”
Additional lending for builders — especially smaller firms — is another need Dietz emphasized. Smaller builders construct the majority of homes, yet many report difficulty obtaining acquisition, development and construction (ADC) loans.
Townhouse construction, which can serve as a stepping stone to full homeownership, is growing at about 12 percent, Dietz said, adding that the primary obstacle for first-time buyers remains saving for a down payment.
Mortgage rates are expected to trend higher. Frank Nothaft, chief economist at CoreLogic, said mortgage rates have risen roughly three-quarters of a percentage point since last year and are likely to increase further.
“A strong economy translates into higher mortgage rates,” Nothaft said at a press conference in Orlando. He also warned that home prices will continue to rise, making affordability the biggest housing challenge for the year.
David Berson, chief economist for Nationwide Mutual Insurance Company, said rising mortgage rates should not significantly dent housing demand.
“Higher mortgage rates will be offset by stronger wage gains and job growth,” Berson said. “So housing activity should increase this year. The question is how much.”
Berson added that financial markets are likely to see two or three Federal Reserve rate hikes this year and perhaps around four in 2018, and he noted that the Fed’s leadership will see changes in the coming years.
“By 2018, President Donald Trump will have the opportunity to nominate all members of the Federal Reserve Board,” Berson said.
Dietz said multifamily housing activity nationwide should remain steady overall, though some markets will feel the impact of local economic conditions — for example, Houston, which continues to recover from an energy-sector downturn.
About 384,000 multifamily units are expected to be built this year, only marginally higher than the previous year’s total. “It all comes down to supply and demand,” Dietz said.
Jan. 10, 2017 Realty News Report Copyright 2017