LAS VEGAS — (Realty News Report) Houston’s single-family housing market appears to be cooling slightly, as developers appear to have gotten ahead of themselves with new product.
That was one of the takeaways from the National Association of Home Builders (NAHB) International Builders’ Show in Las Vegas Tuesday.
NAHB Chief Economist Robert Dietz, who made the comments to Realty News Report on the sidelines of the NAHB show, added that the shortage of skilled labor is one of the main problems facing Houston builders.
Overall, NAHB is projecting 1.26 million total housing starts in 2018 and expects overall production to inch up 0.8 percent this year to 1.27 million units.
New-home sales are rising fastest in the South with Houston leading the way followed by Dallas, Atlanta, Phoenix and Austin, which all averaged more than 1,000 new-home sales per month between Nov. 2017 and Oct. 2018.
Single-family starts are expected to hit 876,000 units in 2018 and rise an additional 2 percent to 894,000 this year. That figure well below the 1.1 to 1.2 million units that demographics would support.
Ongoing job creation and solid household formations will keep demand firm in most parts of the country, Dietz continued, but builders will continue to grapple with a number of challenges including a chronic lack of construction workers; a shortage of buildable lots; and tariffs on lumber and other key building materials.
In addition, home price appreciation over the past year that has outpaced wage gains, contributing to rising concerns about affordability.
Frank Nothaft, chief economist at CoreLogic, said the South and West are the regions that will lead new-home growth in the year ahead. “Metros with good affordability, good job growth and good weather have had the highest growth in new-home sales over the last year,” he noted.
One bright spot is townhome construction, which, is expanding at a robust 24 percent annualized growth rate.
Looking ahead, Dietz said interest rates are anticipated to gradually rise, with the 30-year fixed-rate mortgages expected to average 4.81 percent this year and 5.08 percent next.
Builders worried about a recession around the corner shouldn’t be. The risk of a near term recession is low, David Berson, senior vice president and chief economist at Nationwide Insurance, told attendees. Berson added that economic growth is expected to slow modestly this year in response to trade/tariff issues, higher interest rates and diminishing fiscal stimulus from the 2017 tax cuts.
The Federal Reserve will probably tighten interest rates two or three times this year, he added with fewer moves in future years. This anticipated action, along with inflation edging higher, should result in a modest rise in 30-year mortgage rates in 2019.
Berson said the start of the next recession is uncertain, adding “the odds rise as we look out two to three years.”