For home builders, market conditions can have a big influence on whether or not their business is prospering. So it’s important for them to keep an eye on how things are going right now, as well as where they look to be heading in the coming years. Fortunately for those in the home building industry, the big federal tax cut passed earlier this year seems to be spurring greater job growth and keeping home production trending upward. However, that’s not to say that there aren’t some challenges that you’ll have to contend with. Let’s take a closer look at where the home building market stands right now, along with some projections for the near future.
Healthy Housing Markets
According to experts, the vast majority of housing markets in the U.S. can be rated as healthy. Compared to the boom period from last decade, they note that supply is relatively constrained and the availability of mortgage credit is more limited. In the future, mortgage rates are expected to tick slightly upward, but the effect on the housing market should be negligible due to strong demand and wage growth.
Increase in Housing Starts
Overall housing starts are projected to increase slightly this year as well as next year, with a decrease in multi-family units being offset by a greater increase in single-family units. Home remodeling is also continuing to be very strong in the market with a projected growth of 7% this year. While part of this can be explained by strong demand in the wake of natural disasters, part of this too does stem from a stronger overall market.
Despite market conditions appearing to be all good news, there are a few challenges that the home building market must contend with now and in the near future. Most of these challenges arise from supply-side problems – construction laborers are in short supply and jobs are going unfilled, the number of buildable lots is decreasing, and loan activity is not keeping up with current demand. However, another big challenge is the rise of regulatory costs – these costs have gone up by 29% on average in the last five years, significantly impacting home affordability and placing a drag on the market. Home builders who are able to navigate these challenges, however, should be able to take advantage of more favorable market conditions in the future and prosper!
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