The new tax law will create a more favorable tax climate for the business community, which should spur job and economic growth and keep single-family housing production on a gradual upward trajectory in 2018, according to economists speaking at the National Association of Home Builders (NAHB) International Builders' Show in Orlando, Fla., recently.
"We expect that tax reform will boost GDP growth to 2.6 percent in 2018, and this added economic activity will also bode well for housing, although there will be some transition effects in high-tax jurisdictions," said NAHB Chief Economist Robert Dietz. "Ongoing job creation, expected wage increases and tight existing home inventory will also boost the housing market in the year ahead."
However, builders will continue to deal with ongoing supply-side headwinds this year that will dampen more robust growth.
Those headwinds include an increasing number of unfilled construction jobs, a shortage of buildable lots and a slow growth in acquisition, development and construction loan activity that is failing to keep pace with rising demand.
In addition, regulatory costs stemming from building codes, land use, environmental and other rules have jumped 29 percent in the past five years, with a significant impact on housing affordability. The ongoing U.S.-Canada softwood lumber trade dispute is further exacerbating the situation, as the price of softwood lumber has increased 20 percent from a year ago.
- As the economy continues to strengthen, NAHB expects 30-year fixed-rate mortgages will average 4.31 percent in 2018 and 4.82 percent in 2019.
- NAHB projects 1.21 million total housing starts in 2017 and expects overall production to grow an additional 2.7 percent this year to 1.25 million units.
- Single-family starts are expected to rise 5 percent in 2018 to 893,000 units and increase an additional 5 percent to 940,000 next year.
- Setting the 2000-2003 period as a benchmark for normal single-family housing activity when single-family production averaged 1.3 million units annually, single-family starts are expected to gradually rise from 63 percent of what is considered a typical market in the third quarter of 2017 to 73 percent of normal by the fourth quarter of 2019.