Home Sales Should Be Higher—But They’re Not

April 24, 2018

Following population trends, the U.S. should be adding more than a million households each year for the next few years, economists note in Freddie Mac’s April Outlook report. But higher housing costs and a delay in younger adults’ buying are prompting an uptick in shared living arrangements, multigenerational households, and delayed household formation.

“The broader economic environment remains favorable for home sales,” says 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 researchers expect mortgage rates to move higher along with the 10-year Treasury over this year and next, averaging 4.9 percent in the fourth quarter of 2018 and 5.4 percent in the fourth quarter of 2019. 

A shortage of homes for sale continues to press on many markets across the country. The number of single-family homes available for sale in the U.S. in February was 1.41 million units, less than half of the inventory peak in 2007, according to data from the National Association of REALTORS®. Lawrence Yun, NAR’s chief economist, emphasized on Tuesday the impact of rising home prices and lack of new-home inventory. “Regulatory relief to small-sized community banks will also help boost construction loans,” Yun said in a statement. “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.”

Researchers predict that home sales will rise from 6.12 million in 2017 to 6.3 million in 2018, and to 6.44 million in 2019. They are forecasting that new home sales will be a significant driver in home sales over the next few months. 

Source: “Nothing Draws a Crowd Like a Crowd: The Outlook for Home Sales,” Freddie Mac Outlook (April 2018)