HOUSINGNEWS REPORT
PERSISTENT HOME PRICE APPRECIATION PRESSURES MARKET ORTHODOXIES
construction to rise 5 percent in 2018 – that’s an increase of roughly 42,250 units in a country with 327 million people. Multi-family construction starts actually fell 10 percent in 2017. No doubt new home demand is out there but, without labor, builders have no way to dramatically increase production. NAR explains that 190,000 new workers entered the building trades in 2017 whereas in the previous three years there were 284,000 annual additions. The current immigration debate very much impacts the construction industry. Natalia Siniavskaia, an NAHB economist, said that “a slow, delayed and reluctant post-recession return of native-born workers underlies the shift towards the higher reliance on immigrants in the construction work force.”
Is there a way around the lack of labor? One answer might be a turn toward automated construction. “The $12 trillion construction industry is extremely fragmented with tens of thousands of companies using minimal levels of technology. While labor- productivity growth has skyrocketed in the overall global economy, the construction industry has averaged only 1 percent annual productivity growth over the past two decades,” said Jeffrey Housenbold, managing partner for SoftBank Investment Advisers. The SoftBank Vision Fund has invested in Katerra, a construction-industry technology company which recently raised $865 million. Lastly, distressed homes have been a ready source of inventory during the past decade but that market is drying up as prices rise and equity increases. Figures from ATTOM Data Solutions show that foreclosure filings were down 27 percent in 2017 when compared with 2016 and off 76 percent from the 2010 peak. Put it all together and it seems likely that the single most important factor forcing up real estate prices in 2018 will be a simple lack of inventory. In January Zillow reported that “there are 10 percent fewer homes on the market to choose from than a year ago, and up to 40 percent fewer in housing markets where home values are appreciating fastest.” For the year ahead the worry is that inventory woes will get worse because the population is growing, mortgage
rates are likely to increase, new construction growth will be modest, and with the economy doing well foreclosure levels will remain low. Alternatively, the inventory shortage should please at least one group: if you’re a seller little supply can mean multiple offers, quick sales, and nicely rising prices. represents a lack of supply there’s also a smaller but visible lack of demand: many potential buyers simply do not have the dollars and credit needed to purchase. If more buyers enter the market then one might expect even higher prices but such a breakthrough is unlikely in 2018. According to Harvard’s Joint Center for Housing Studies some 21 million households now devote at least 30 percent of their income to rent and the result is a growing inability to save, not just for a down payment but to save in general. Nearly seven out of ten consumers have less than $1,000 in savings according to a 2016 study by GoBankingRates.com. In addition, student debt – a huge monthly cost for many potential homebuyers – amounted to $1.36 trillion at the end of the third quarter, up more than $1 trillion since 2004. Without savings, an auto repair or small medical emergency can turn into overdrafts and missed payments that lead to lower credit scores and The Rental Crush While the inventory shortage
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FEBRUARY 2018 | ATTOM DATA SOLUTIONS
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