Housing fundamentals remain healthy into 2020, and we continue to build below long-term averages for housing needs. According to the new JCHS projections, the number of US households will grow by 12.2 million between 2018 and 2028, and then 9.6 million between 2028 and 2038. However, typical construction cycle dynamics have changed, creating a long tail of moderate, extended growth in housing.
It will likely take several years, even at a more robust pace, for new construction to address the existing pent-up demand for additional housing, as suggested by a still-increasing share of 25- to 34 year-olds living at home with their parents.
– Fannie Mae, December 2019
More favorable conditions and a renewed focus by builders will allow for continued growth through 2020 with a pause or slight pull back in 2021 before recovering through 2024. Some key factors contributing to continued growth in the housing market are outlined below:
- Supply-side builder infrastructure is being challenged post-recession to address demand for entry level homes. This is just beginning to build momentum though will offer many opportunities to builders in the coming years.
- Improved lending mechanisms and the return of more debt options allow for mortgage access to a wider variety of consumers.
- Continued household formations are still below long term average, perpetuating the backlog of housing demand.
- Millennials – the largest population segment – are entering into prime home ownership years. This leads to a higher number of employed, income generating homebuyers with the ability to afford better housing.
- High rental and occupancy rates in multifamily buildings create opportunities for single-family home builders.
- Labor shortage and builder supply structure may limit growth.
The key to strong performance in housing beyond 2020 is the starter home. Build rates and supply levels have trailed demand in the last several years, providing an opportunity for builders in the market.
For more information on emerging trends in the building and construction industry, download our 2020 Building & Construction Outlook.
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