- Houses under construction at a Lennar Corp. development in Doral, Fla., last year. New-home sales make up a small part of the housing market but are important to the economy overall because they drive job growth and consumer spending.
- MARK ELIAS/BLOOMBERG
Economists are betting the U.S. housing market will take its cues from the labor market this year rather than unsettled financial markets.
The housing market faces a number of headwinds including potentially higher interest rates, volatile financial markets and falling oil prices hitting some oil-rich areas. Housing-affordability concerns and a shortage of construction workers also are slowing the pace of building. But that is likely outweighed by rising household formation, improving employment and wage numbers and steep rent increases that could start pushing renters to buy, economists said at the International Builders Show in Las Vegas.
“If we look at all the metro areas of the country, almost all of them suggest that we should see sustained growth in the coming year,” said David Berson, chief economist at Nationwide Insurance.
Mr. Berson said he sees some weakness in areas heavily dependent on oil, such as North Dakota and Houston. He also has some concerns about areas such as Denver that have seen steep price run-ups out of line with income growth.
But even if the stock market has a rocky year, he said, that has relatively little effect on demand for homes, which are much more driven by employment, or the economy overall.
Frank Nothaft, chief economist at CoreLogic, said he expects new home sales to rise 13% in 2016, although he expects just a 3% increase in existing home sales. The latter is driven in part by a positive trend—fewer distressed sales.
David Crowe, chief economist at the National Association of Home Builders, said he expects single-family home starts, which were just 55% of normal historical levels in the third quarter of 2015, to rise to 65% of normal levels in 2016, or 840,000 starts. He said they could hit 87% of normal levels in 2017, or more than 1 million starts. “Home building has finally started to surge,” Mr. Crowe said.
Sales of newly built homes rose 14.5% in the first 11 months of 2015 compared with the same period in 2014, according to the Commerce Department. But the pace of new-home sales has appeared to lose later in the year, averaging 467,000 during the fall months versus 517,000 in the first three months of the year.
New-home sales make up a small part of the housing market but are important to the economy overall because they drive job growth and consumer spending. They also reflect increased formation of new households, which has been sluggish until recently.
A global economic slowdown could also help ensure mortgage rates remain low despite the recent decision by the Federal Reserve to raise short-term interest rates—another boost to the housing market. Messrs. Crowe and Nothaft both said they expect rates for a 30-year fixed-rate mortgage to go no higher than 4.5% by the end of the year. Mr. Crowe said he expects them to reach 5.3% by 2017.
Related reading:
U.S. Housing Starts Dropped 2.5% in December
U.S. New-Home Sales Rose 4.3% in November
Has Industry Consolidation Held Back Home Construction?
Seniors, Not Millennials, Are Creating New Households
More Young Adults Live With Their Parents Now Than During the Recession
from Real Time Economics http://ift.tt/1JhYaEJ
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