The U.S. housing market shows first signs of slowing

New home starts in the U.S. achieved 1.26 million units in 2018, but 2019 will be flat after nine consecutive years of growth.

The U.S. economy appears well on its way to a ninth straight year of expansion in 2018. U.S. gross domestic product (GDP) has experienced 18 consecutive quarters of growth and in 3Q 2018 was up 3.4% from the previous quarter. Moderate gains were registered in both the construction and housing markets. The value of U.S. construction spending (includes both private and public residential and non-residential construction) rose for the seventh consecutive year and was at an estimated $1.3 trillion (1,230 billion in 2017), an all-time high.

In the residential market, total new home starts increased for the ninth consecutive year and were at their highest annual level since 2007. The estimated 1.3 million units started in 2018 represented a 5.1% increase from the previous year. However, even with this consistent growth, there is still a long way to go to achieve pre-recession levels, as 2018 starts were off 39% from 2005, when there were nearly 2.1 million starts. Looking ahead, according to the National Association of Home Builders (NAHB), new housing starts will be flat in 2019 (1.27 million units) before increasing to 1.31 million units in 2020.

New single family home sales were at their highest level in more than a decade. The estimated 628,000 units sold in 2018 represented a 2.4% increase from 2017. While new home sales have steadily increased each of the last seven years and have more than doubled since 2011, in 2018 they were less than half of what they were in 2005, when a record 1.28 million new single-family units were sold.

On the contrary, according to the National Association of Realtors,  existing home sales in 2018 were down 3.1% vs. the previous year at 4.74 million units, the first year-over-year decline since 2014.

Various aspects are contributing to the slowing of the residential market, such as low inventory, rising home prices, tighter lending conditions, as well as higher mortgage rates: the 30-year fixed mortgage rate for 2018 was 4.54%, up from 3.99% the previous year and the highest level since 2010.