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Housing Market to Continue to Improve in 2016, But Not Without Headwinds

With so many positive reports on the housing market thus far in 2015, economists believe that growth in 2016 will keep the upward trend going, but not without a few headwinds.

In 2016, economists that participated in National Association of Home Builders (NAHB) Fall Construction Forecast Webinar say that employment and economic growth, pent-up demand, affordable home prices, and low mortgage rates will continue to improve the housing market, but shortages and lot and labor availability and rising building material prices could hinder a more robust recovery.

Concerns about cost and availability of labor were reported from 61 percent of builders in 2014, up from 13 percent in 2011, according to the NAHB. In terms of lots, 58 percent of builders indicated that they were concerned about this in 2014. Building materials worries also hit 58 percent of builders, an increase from 33 percent in 2011.

The NAHB forecasts that single-family starts this year will come in much higher than last year at 719,000, up 11 percent from 647,000 in 2014. In 2016, single-family starts are expected to rise 27 percent to 914,000 units.
Trulia’s Housing Economist Ralph McLaughlin says that millennials prefer to own a home in the suburbs than rent in the cities despite popular belief.

“Many believe that home buyers are bucking the trend of previous generations in that they want to live in urban areas and want to rent,” McLaughlin said. “What we are finding from our surveys is just the opposite. Among millennial renters, almost 90 percent say they eventually want to purchase a home. That is significantly higher than Gen Xers, who were hurt by the recession, and quite a bit more than current baby boomer renters, who are at 40 percent.”

NAHB Senior Economist Robert Denk found that the housing market is improving in all regions, but the pace of recovery varies all over the country.

“We’ve gotten to the point in the recovery where we no longer have problems that came with the housing bust,” said Denk. “It now is really a matter of housing markets reconnecting to the fundamental drivers, and that is employment. Production has been rebounding in all regions, prices have been moving up and new foreclosures are back to more normal levels.”

NAHB Chief Economist David Crowe noted that housing recovery is “all about jobs and “if people can get good jobs that pay decent incomes, the housing market will continue to move forward.”

Crowe also believe that the potential rate increase, averaging 4.5 percent in 2016 and 5.5 percent in 2017 should not affect further recovery in the housing market.

“As the economy gets better, job and wage growth should keep pace,” he said. “So even though mortgage rates will rise, they will still be low by historical standards and very affordable.”

Source: National Association of Home Builders


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