In a new report posted on its website last July 27, Thursday, Freddie Mac revealed its monthly Outlook for July, analyzing the possible reasons why the residential construction has continued to lag behind housing demand, causing home prices to skyrocket since the later part of last year. In this report, the government service enterprise puts forward some answers, and possibly hope that the situation would be better in the near future.
It’s no news that available housing inventory has put a great strain to the current housing market. Since the end of 2016, housing starts have decreased by 14 percent and the situation has never shown signs of improvement since. What could have caused this?
Freddie Mac points to the shortage of skilled labor and expensive development costs – e.g. cost of land, existing land-use regulations – as the culprit as to why there is no increase in production occurring.
Let’s set focus on the shortage of skilled labor. The number of open construction sector jobs as of May 2017 stands at 154,000. The increase has been steady since the recession. Apparently, fewer individuals have returned to the construction sector after the 2008 housing crisis, and the current increases in the enforcement of immigration laws is adding more strain to the circumstances.
Freddie Mac says we can expect the housing starts to remain below their historical average for the remainder of the year, with a predicted average of 1.27 million.
With inventory putting too much pressure on housing, prices have significantly shot up. But looking at the demand statistics does not seem to tell us that it matters at all. Demand is still high, despite the increase in home prices. And why is this so? Low mortgage rates are seen as the main reason. Currently, rates hover slightly below the 4 percent mark and experts predict that the range will remain steady for the rest of 2017.
The silver lining
Freddie Mac’s chief economist Sean Becketti believes that despite the inventory situation, the housing market is still in a very good standing. The market, he says, is still “rebounding” with sales volume remaining robust in spite of current pressures.