Housing Market: Housing Starts & Home Sales

Economic Forecasts

Housing Market Continues Its Steady Improvement

Kiplinger's latest forecast on housing starts and home sales

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Residential construction rose in December, with strong increases in both single and multifamily starts. Total housing starts jumped 16.9% in December to a seasonally adjusted rate of 1.61 million – the highest level since December 2006. Single-family starts rose 11.2%, while multifamily starts increased 29.8%. November data were revised down, but housing starts performed well in the fourth quarter. Unseasonably warm weather in December is likely one of the main factors in the exaggerated jump. Gains in residential construction will likely pull back in coming months.

New-home sales remain solid in spite of a downward revision to recent data. New-home sales rose 0.4% in December. Most of the decline in sales happened in the South. Despite revisions to the data for all the months in the fourth quarter, new-home sales had a strong 2019. There were 327,000 homes for sale in December – a 5.7-months’ supply at the current sales pace. Sales continue to outpace inventory growth, and the number of new homes listed for sale has trended down since January 2019. With tight inventories pushing prices up, the share of new homes sold for less than $300,000 fell to 40% in December from 41% a year ago. December brought total sales to 694,000. With mortgage rates low and builder optimism rising, sales should be solid again in 2020. Inventories, however, are still low. As a result, prices will rise for new residential construction.

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

Existing-home sales rebounded in December, closing the year on a strong note. Sales of existing homes rose 3.6% to a seasonally adjusted rate of 5.54 million. Compared with a year earlier, sales are up 10.8%. For the full year, existing-home sales ended at the same level as in 2018. The 30-year fixed rate mortgage fell from 4.51% in early 2019 to 3.51% as of late January 2020. Lower financing costs have bolstered demand enough to keep up a slow and steady pace of sales. Homes continue to sell fairly quickly, averaging 41 days on the market. With supply lacking, existing-home sales will likely remain subdued as inventories remain at record lows. Listings failed to keep up with sales in December, with the inventory-to-sales ratio for single-family homes declining to 3.0 months. On a year-over-year basis, total inventory was down 8.5%: The sixth consecutive decline.

Home prices are on track to rise 3.6% in 2020. The S&P CoreLogic Case-Shiller National Home Price Index rose 3.5% in November from a year ago, up from 3.2% in October. This is the fifth consecutive month of year-over-year increases, reversing the longer-term trend of decelerating price growth that began in March 2018 and ended in July 2019. Home prices are currently 59% above the bottom reached in February 2012. They are now 15% above their pre-crisis peak.

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