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NAHB Predicts Home Construction to Rise in 2017, Creating Shortage of Lots, Labor and Loans

Rob Dietz, Chief Economist, NAHB

Rob Dietz, Chief Economist, NAHB

ORLANDO – Lots, labor and lending will steer the U.S. homebuilding industry this year, with single-family housing starts expected to increase 4.9 percent to 1.16 million from a year ago,  according to the National Association of Home Builders (NAHB).

Mortgage rates will average 4.5 percent this year before ticking up to 5.3 percent in 2018, said NAHB Chief Economist Rob Dietz.

“Labor is a constricting factor on how much home building will grow,” said Dietz, speaking at the NAHB International Builders’ Show in Orlando Tuesday, “and one of the three L’s that could constrict growth — the others being lots and lending.”

Dietz noted that in terms of labor, the rate of unfilled jobs currently in the building industry is 2.7 percent, more than the 2.5 percent reported at peak of the building boom.

“There are a lot of unfilled positions in construction sector,” he continued. “Wages for the construction industry should rise, but we have to recruit new construction workers.  The median age of the construction worker now is 42, and aging.  If I could do one change on the supply and demand side, it would be to get more workers into the labor pool.”

Dietz added that lots are also limiting single-family home construction in the U.S. with some 64 percent of builders reporting a low or very low supply of lots.  “It’s the legacy of the great recession,” he said, “with that big inventory of lots worked off, we need local governments to approve more lots.

Additional lending to builders – particularly smaller firms — is also needed, Dietz said, since small builder builds most of homes. Many builders report “ADC loans” – acquisition, development and construction loans – are difficult to obtain.

Townhouse construction, which can be a bridge between home ownership, is growing at 12 percent, said Dietz, noting that the major stumbling block for first time homebuyers is accumulating the down payment.

Mortgage rates are expected to rise this year. Frank Nothaft, chief economist at CoreLogic, said that mortgage rates are up three quarters of a percentage point since last year and will probably rise further.

“A strong economy will translate into higher mortgage rates,” Nothaft said at a news conference at Orlando’s convention center. Home prices will also be rising. “The biggest housing issue in 2017 will be affordability.”

Rising mortgage rates shouldn’t have an adverse impact on housing demand, said David Berson, chief economist for Nationwide Mutual Insurance Company.

“Rising mortgage rates will be offset by stronger wage gains and job growth,” Berson said.  “So housing growth should increase this year.  The question is how much?”

Berson said that the finance industry is more likely to get two or three Federal Reserve tightenings this year and four or so in 2018, adding that the composition of Federal Reserve Board changing in two years.

“In 2018, President Donald Trump will nominate all member of Federal Reserve Board,” Berson said.

NAHB’s Dietz said multifamily activity across the country will hold study, but multifamily construction will be impacted in areas such as Houston, which is still reeling from the energy downturn.

Some 384,000 multifamily units are expected to be built this year, only 1,000 units above last year’s construction.  The reason?  “Supply and demand,” said Dietz.

Jan. 10, 2017 Realty News Report Copyright 2017

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