The United States should be adding around one million new households each year if it follows current population trends, but that’s not happening according to a new report by Freddie Mac economists.
Freddie Mac’s April Outlook report says that higher housing costs and younger adults’ decisions to delay buying have led to an uptick in apartment sharing and multigenerational households, thereby delaying the formation of new households.
“The broader economic environment remains favorable for home sales,” said Len Kiefer, Freddie Mac’s deputy chief economist. “But without new-home construction and increased housing supply, home sales in the U.S. will have a hard time growing from current levels. If incomes grow and mortgage rate increases are gradual, then the housing market should post modest growth this year and next.”
Freddie Mac’s economists say that mortgage rates should edge upwards this year and in 2019, hitting 4.9 percent in the fourth quarter of 2018 and 5.4 percent a year later.
Another factor delaying new household formation is the lack of inventory of homes for sale. The number of single-family homes listed for sale in February stood at 1.41 million, which is less than half of what inventory stood at during 2007. That figure amounts to a three-month supply at the current sales pace, whereas a six-month supply is considered “healthy”.
With such low inventory it means fewer options for buyers, who often find themselves competing against multiple bidders for the same property. As a result, home prices are trending upwards quite rapidly, pushing many younger buyers out of the market.
The lack of inventory was one of the key points made by National Association of Realtors chief economist Lawrence Yun earlier this week.
“Regulatory relief to small-sized community banks will help boost construction loans,” Yun said. “Local governments need to speedily approve housing permits. And there needs to be a way to more easily acquire trade skills like carpentry, wood framing, and other construction specialties for those wanting to earn good middle-income salaries without having to go to college. Such actions will boost economic growth and provide better access to homeownership.”
Still, Freddie Mac’s economists remain optimistic that the housing market will continue to see healthy growth. Researchers predict home sales to grow from 6.12 million last year to 6.3 million in 2018, and to 6.44 million in 2019. New home sales will become a significant driver of this growth, they said.