Shortage of labour and materials will thwart builders

Developments in the housing market continue to be dominated by record low levels of inventory. A scarcity of labour and high lumber prices are preventing builders from responding to that shortage. Single-family housing starts will therefore rise only gradually this year. The lack of homes for sale might be expected to boost house price inflation. But buyers are being put off by the limited choice on the market and concerns that prices are too high. Alongside rising mortgage rates and tight mortgage lending standards, that suggests house price growth will slow to 5% by the end of 2018, and 2% by end-2019. The lack of homes on the market is also supporting rental demand, and the three-month absorption rate for new apartments has stabilised. Alongside higher household income, that means rental growth will slow only marginally, to 3.5% y/y this year.