Construction of more new homes could ease inventory crunch

A stronger economy, wage growth and an improving job market are expected to march home sales. Prices are higher in 2018, but low supply and weakening affordability will tamper the rate of increases. Despite headwinds a moderate and multiyear increase in home sales is likely ahead.

After accelerating 3.8 percent in 2016, existing-home sales rose only 1.1 percent to 5.5 million in 2017.

They are forecast to finish 2018 at a pace of around 5.6 million (up 1.8 percent). Real estate experts projects 5.7 million sales for 2019.

Overall fundamentals remain solid, driven by a growing economy and steady job creation. This will sustain home sales in 2018 slightly above last year’s pace. The worsening housing shortage primes home prices to rise further this year too. This will be hindering to affordability conditions for homebuyers in markets across the country. One of the solutions to the shortage is new construction.

The widespread shortage of homes for sale is the major factor limiting sales from being higher. While home sales have risen modestly since the start of the year, without more supply of new construction homes to fully satisfy demand and alleviate the upward pressure on prices, contract activity is likely to remain flat and will more or less continue sideways through the end of the year.

According to Realtor.com data, there are 250,000 fewer starter homes, those priced under $200,000, now than two years ago, in May 2015. Millennials, Baby Boomers and investors are going after the same affordable inventory of homes especially when involving new construction. For more information on new construction, land for building a home or build to rent, contact an expert member of the Land Wealth team today.