President Donald Trump’s State of the Union address is now history, but realtor.com® has released its own “State of the Housing Union.” The housing market outlook is looking bright on several fronts: strong buyer demand, particularly among first-timers, and a growing U.S. economy urging more consumers to buy.
But a housing shortage is also proving to be a major obstacle to achieving homeownership, according to the report.
“The macro factors that have defined real estate in recent years—strong demand and weak supply—continue to set the tone for the industry,” says Joe Kirchner, senior economist for realtor.com®. “The new tax law that caps the mortgage interest deduction and the deductibility of state and local taxes can be expected to impact the upper-end market in 2018—precisely how and the extent of which remain to be seen.”
Here are some highlights from realtor.com®’s “State of the Housing Union” report:
Economy: Confident consumers financially tend to translate into stronger housing markets. Consumer confidence is rising and unemployment has dropped to its lowest level since 2000 (at 4.1 percent currently). The stock market has soared to record highs over the last few months.
Home sales and prices: Existing-home sales cooled at the end of December, dropping 1.1 percent month over month. Home prices continued to rise, growing 5.8 percent on average during 2017 compared to a 5.1 percent growth in 2016.
But inventory woes are preventing sales from growing even more. Inventories dropped 8.8 percent nationwide in the 12 months ending Dec. 31, 2017. New-home construction did pick up the pace in 2017, jumping 10.2 percent in single-family housing starts in 2017 compared to 2016. However, despite an increase in new-home construction, inventories remained low for the year.
Home buyers: First-time home buyers have been faced with limited supplies of homes for sale. This comes at a time when more millennials are showing a desire to buy, particularly as they’ve been reporting steady employment and reaching life milestones like getting married or starting a family. The majority of new-home construction has been in the mid- to upper-tier price points, which has been out of the price range that many first-time buyers are looking at.
“Builders will need to focus more on homes geared for moderate incomes, partner with the government on initiatives to transform distressed urban neighborhoods and overcome labor shortages through a combination of workforce development training and pressure to ease artificial restrictions on the supply of labor,” Kirchner says.