Housing starts to decline in 2019 but demand will also ease

US housing starts are set to ease in 2019 but demand is also expected to weaken.

That’s according to Dodge Data Analytics which forecasts that single-family housing starts will be down 3% in unit terms to 815,000 (Dodge basis) but unchanged in dollar terms.

Rising mortgage rates, lower affordability, and reduced benefits from tax cuts introduced this year, will mean slightly lower demand for newly-built homes.

Meanwhile, in the multifamily sector Dodge predicts a 6% decline in dollars and an 8% decline in units (465,000 Dodge basis) as market fundamentals including occupancies and rent growth resume weakness after a stronger 2018.

“An important question going into 2019 is whether deceleration is followed by a period of high level stability or a period of decline,” said Robert A. Murray, Dodge’s chief economist. “For 2019, it’s expected that growth for the US economy won’t be quite as strong as what’s taking place in 2018, as the benefits of tax cuts begin to wane. Short term interest rates will rise, as the Federal Reserve continues to move monetary policy towards a more neutral stance. Long-term interest rates will also rise, reflecting higher inflationary expectations by the financial markets.”

Commercial starts also expected to decrease
Commercial building will retreat 3%, following 2% gains in 2017 and 2018, as well as the substantial percentage increases that took place earlier.

While 2018 market fundamentals for offices and warehouses are healthy, next year vacancy rates are expected to rise as the economy slows, slightly dampening construction. Hotel construction will ease back from recent strength, and store construction will experience further weakness.

“Any erosion in market fundamentals for commercial real estate will stay modest,” added Murray. “In addition, the greater funding from state and local bond measures passed in recent years will still be present, and it’s likely that federal spending for construction programs will increase once all the federal appropriations bills for fiscal 2019 are finalized. In this environment, it’s forecast that growth for construction starts will decelerate further, but not yet make the transition to the point where the overall volume of activity declines.”