This piece was originally published in the March/April 2019 issue of electroindustry.
Fred Ashton, Economic Analyst, NEMA
Before the recession, housing starts averaged 1.57 million units per year. Since the end of the financial crisis in 2009, the recovery in residential construction has lagged overall growth. Housing starts have averaged just 1.24 million units since 2017. Housing affordability challenges have contributed to weak residential construction markets.
National Association of Realtors data suggest home affordability dropped in 2Q 2018 to its lowest level in 10 years. Government data showed the median price of a new home rose 52 percent since 2010, but average weekly earnings increased just 21 percent.
After hitting a multi-year high of 4.87 percent in November 2018, the conventional 30-year mortgage rate moderated, averaging 4.47 percent in January 2019. The rate is 50 basis points higher than a year-ago rate and more than a full percentage point higher than in December 2012.
Given these headwinds, how has the housing market been performing?
The nearby map shows the year-to-date percent change in housing permits by state. Housing permits are an indicator of future housing construction. Most of the 4.7 percent year-to-date increase in October 2018 occurred in the South, while parts of the Midwest and Northeast have underperformed.
So, what does the future look like for housing? The outlook calls for modest improvement. Housing starts are expected to increase, reaching 1.38 million units in 2020.
Home price appreciation is expected to slow in 2019. Meanwhile, a more dovish Fed may ease upward pressure on mortgage rates. Relatively low mortgage rates and rising wages in a strong labor market will mitigate affordability barriers.
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