December 06, 2017

What’s in Store for the Housing Market Next Year?

by Anthony Wright

It’s been a wild, at times red hot year for the U.S. housing market.

Consider that in October, U.S. single-family home sales unexpectedly hit a 10-year high, “amid robust demand across the country,” as reported by Reuters.

More:

The upbeat report from the Commerce Department on Monday was the latest indication that housing was regaining momentum after treading water for much of the year because of a dearth of homes for sale and shortages of labor and suitable land for building. It underscored the economy’s strength early in the fourth quarter.

It’s an interesting time for housing market watchers, to say the least. Another notable item from October was the bounce-back for housing starts, marking a one-year high—driven in part by reconstruction efforts after an uncommonly destructive hurricane season ripped through the South. Multifamily construction bolstered these figures, but this increase reflects a positive reversal of the housing starts slump we’ve seen throughout the third quarter of the year.

I’ve been thinking about where we’re headed in 2018, and while there’s reason to believe we’ll continue on an upswing, new factors will always bring some uncertainty. For instance: As I write this, Republicans in the House of Representatives are mulling a tax code overhaul that has the potential to upset current market conditions by “cutting in half the size of loans that qualify for deductions of mortgage interest, to $500,000 from $1 million,” per the Wall Street Journal. It’s an indicator that while there are reasons to feel confident about the U.S. housing market—overall market optimism and positive economic numbers—there are always new and different factors that will affect it.
Here are a few that I think might make an impact next year:

New Single-Family Homes Are Getting Smaller.

Consider this recent observation by the National Association of Home Builders (NAHB):

After increasing and leveling off in recent years, new single-family home size continued along a general trend of decreasing size during the third quarter of 2017. This change marks a reversal of the trend that had been in place as builders focused on the higher end of the market during the recovery. As the entry-level market expands, NAHB expects typical new home size to fall as well.

For fenestration professionals, of course, smaller homes mean fewer windows, along with other building products. It’s something we should be keeping our eyes on. There are a number of factors that may be contributing to this trend. For one, millennials continue to become a larger portion of homeowners; generally, millennials are both marrying and having children at a lower rate than generations past. So, what’s the need for that big new house?

(An aside: I’ve written before about “tiny houses,” and I recently stumbled across this account of life within a 492-square-foot living space earlier this week. To put it lightly, there are some drawbacks. Interesting stuff!)
Speaking of millennials…
The Market Will Respond to Millennials.

If new build homes are reflecting the lives and preferences of millennials, that’s not the only way the housing market is adapting to a new generation of homebuyers.
According to a recent trend forecast from Zillow, housing inventory will continue to be a challenge throughout the market, particularly as millennials move fully into homebuying. And more broadly, “these dynamics will lead to both predictable and creative responses from homeowners, buyers and builders in 2018.”

The piece predicts that millennials along with some baby boomers will drive design trends, and then millennials will begin making their way toward the suburbs in search of affordability. Perhaps most interestingly, Zillow predicts that builders will begin to focus on entry-level homes in order to satisfy a demand by those that can’t afford those larger, more opulent new homes. This correlates with new homes’ shrinking size, making this trend all the more worth keeping tabs on for fenestration professionals.

To be sure, there will be other things to watch for this coming year. And let’s keep our fingers crossed that things continue to move in the right direction.

Questions or comments? Contact me directly at Anthony.Wright@Quanex.com.
 

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Posted: December 06, 2017 by Anthony Wright Filed under: trends, housing, market