Dallas and Houston Will Lead Nation into a Good Year for Home Building, Economists Tell NAHB

LAS VEGAS – (Realty News Report) – Thanks to strong economies and heady population growth– to say nothing of low interest rates — Houston and Dallas are expected to lead the nation in new home starts this year.

Single-family starts should continue on a gradual, upward trajectory in 2020, according to economists speaking at the International Builders’ Show in Las Vegas Tuesday.

Houston and Dallas are leading the way, averaging at least 30,000 new home sales between Oct. 2018 and Sept. 2019, said Frank Nothaft, Senior Vice President and Chief Economist of CoreLogic, a global property information firm. Nothaft told attendees at the NAHB International Builders’ Show that the two Texas cities were followed by Atlanta, Phoenix and Austin, which all averaged at least 15,000 sales in the same period.

Nothaft, National Association of Home Builders Chief Economist Robert Dietz and David Berson, senior vice president and chief economist at Nationwide Economics, were all upbeat about residential real estate prospects in Texas and the rest of the country for 2020.

“The housing market is entering the year with a great deal of momentum from 2019,” Nothaft added. “This is the first time in post-World War II history that unemployment and mortgage rates are both below 4 percent. That will help fuel demand.”

Home prices are expected to rise 4.8 percent, the economists said, noting the odds of a recession have gone down significantly his year, adding that interest rates are expected to remain low for a long time.

Driven by solid job growth and low mortgage rates that will keep demand steady U.S. single-family starts are forecast to increase more than 3 percent from 2019 to about 920,000 units this year according to the NAHB.

“Low resale inventory, favorable mortgage rates, historically low unemployment and accelerating wage growth are driving builder sentiment and point to single-family production gains in 2020,” said NAHB’s Dietz. “At the same time, builders are still under-building as they continue to struggle with rising construction costs stemming from excessive regulations, a chronic shortage of workers and a lack of buildable lots. These affordability headwinds are impeding more robust construction growth.”

Dietz said 2020 housing starts are still significantly less than the 1 million to 1.1 million units that are needed.

NAHB is expecting multifamily starts to hold relatively steady this year at 383,000 units. Currently, 93 percent of all multifamily units are built for rent vs. 7 percent that are constructed for-sale. The historical split is 80-20.

New-home sales are projected to total 708,000 in 2020, up 2.5 percent from last year, the economists added. This would mark the first year sales would surpass 700,000 since 2007.

“Markets with good affordability, high employment and outdoor amenities have had the highest growth in new-home sales over the last year,” said CoreLogic’s Nothaft. “Home prices and rents are expected to continue to outpace inflation in most areas, with nationwide home prices anticipated to rise 4.8 percent in 2020 and single-family rents up 3 percent.”

The interest rate outlook is also expected to be hospitable to the home building and buying scene. David Berson, senior vice president and chief economist at Nationwide Economics, said that rates are expected to remain low for the foreseeable future, probably several years.

“Trend growth depends on productivity growth and labor growth and productivity has not picked up,” said Berson, who noted that GDP growth has averaged just 2 percent since the Great Recession.

At the same time, the nation has experienced a long period of slow labor growth, which slows real economic growth.

Other factors that are keeping interest rates lower for longer include the fact that long-term Treasury yields are still near 100-year lows, helping to hold mortgage rates at historically low levels. At the same time, inflation remains below the Fed’s long-term goal of 2 percent.

“2020 should be a good year for new home construction, given the historically low number of homes for sale relative to the number of households, there is only one outlet to meet demand – new home construction,” said Berson.

Headwinds to home sales and construction include a higher cost of labor and a shortage of skilled workers.

Jan. 22, 2020 Realty News Report Copyright 2020

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