Metrostudy chief economist Mark Boud and his team recently released their analysis and forecasts for the fourth quarter of 2018. The number-crunching indicates smooth sailing for the not-so-distant future with turbulence expected by 2020.
Boud believes mortgage interest rates are going to continue to climb which is bad news for home building. “We think it begins to plateau in 2020-2021, with a plateau of about 5.8% which may not sound like a big deal but mortgage rate have been so low for so long it slows mobility rates,” he says.
Boud cited the positive effects of the 2.5 million increase in job growth numbers that exceeded forecasts of 2.34 million for the year. The market is also banking an all-time high in equity wealth as the existing housing stock continues to age. Owners are staying in their homes longer as millennials are beginning to buy and remodel as opposed to trading up.
While housing starts are trending upwards, which is a good sign, the availability of buildable lots is going down, which is a bad sign. “Actual buildable land inventory is very tight and getting tighter, especially since a lot of is out in rural areas,” says Boud.
The biggest piece of potentially good news for the building industry is what could happen in the affordable entry level market. “There is enormous opportunity out there but it’s challenging to tap into it,” says Boud. “We’re not taking advantage of the demand that’s there in the lower price ranges and sometimes it’s impossible to do, as the municipalities are slow to adopt higher densities.”
According to Metrostudy, emerging technology is having profound effects on the industry as off-site modular construction becomes more popular. At this point, stick-built methods still have a price advantage but that could change subject to the labor shortage in the construction industry. Boud also talked about non-traditional players entering the housing market, including the tech giants Amazon, Google, and Apple.
“They actually control the supply chain of goods into the home and they want to control the home itself,” he says. The advance of electric vehicles and battery technology as it’s linked to solar energy will continue to be a disruptive force on the housing industry.
Below are other key takeaways from the presentation:
–The national housing market will continue to be significantly under-supplied. There remains enormous levels of pent-up housing demand in the lower to moderate price ranges.
–The national housing market will become increasingly over-valued but the risk of a price collapse is small due to under supply.
–Rising mortgage rates will continue up for the next 24 months and inflationary pressures are building.
–“Overall we think we’re in the top of the eighth inning of the cycle with a mild to moderate correction predicted beginning in years 2020/2021,” Boud says.
–The greatest short term worries are centered on cost and reduced affordability. The greatest long term worry is the national debt.
Boud’s closing statement on the current state of the market shows a mix of caution and optimism. “There’s enormous levels of pent-up demands and growing levels of overvaluation It should be strong market year and next year is stable especially if we try to take advantage of the possibilities in the lower price ranges but demand will go negative in 2021-22,” he says.