The recent ramp-up in construction failed to match demand
While home sales continued to see favorable economic conditions in April, they will find it difficult to grow from present levels unless new construction meets demand, Freddie Mac said in its outlook for the month.
“The broader economic environment remains favorable for home sales,” said Freddie Mac Deputy Chief Economist Len Kiefer. “But without new home construction and increased housing supply, home sales in the US 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 said it expects mortgage rates to average 4.9% and 5.4% in the fourth quarter of 2018 and 2019, respectively, as the 10-year Treasury moves higher.
Although there has been a recent ramp-up in new home construction, Freddie Mac said the increase was not enough to meet demand. Homes under construction reached new expansion highs at 1.12 million as of March. However, labor shortages and an increase in development costs have been holding back housing starts.
As construction keeps grinding higher, Freddie Mac it expects sales of new homes to drive total home sales higher from 6.12 million in 2017 to 6.3 million in 2018 and to 6.44 million in 2019.
