7) Residential Investment: Residential investment (RI) was sluggish in 2017, although new home sales were up solidly. Note: RI is mostly investment in new single family structures, multifamily structures, home improvement and commissions on existing home sales. How much will RI increase in 2018? How about housing starts and new home sales in 2018?
First a graph of RI as a percent of Gross Domestic Product (GDP) through Q3 2017:
Click on graph for larger image.Usually residential investment is a strong contributor to GDP growth and employment in the early stages of a recovery, but not this time - and that weakness was a key reason why the start of the recovery was sluggish.
Residential investment finally turned positive during 2011 and made a solid positive contribution to GDP every year since then.
RI as a percent of GDP is still low - close to the lows of previous recessions - and was sluggish in 2017.
The second graph shows total and single family housing starts through November 2017.Housing starts are on pace to increase close to 3% in 2017. The slower growth in 2017 was due to the weakness in the multi-family sector.
Even after the significant increase over the last several years, the approximately 1.21 million housing starts in 2017 will still be the 17th lowest on an annual basis since the Census Bureau started tracking starts in 1959 (the seven lowest years were 2008 through 2014). The other lower years were the bottoms of previous recessions.
The third graph shows New Home Sales since 1963 through November 2017. The dashed line is the November sales rate.New home sales in 2017 were up about 9% compared to 2016 at close to 612 thousand.
Here is a table showing housing starts and new home sales since 2005. No one should expect an increase to 2005 levels, however demographics and household formation suggest starts will return to close to the 1.5 million per year average from 1959 through 2000. That would suggest starts would increase close to 25% over the next few years from the 2017 level.
| Housing Starts and New Home Sales (000s) | ||||
|---|---|---|---|---|
| Housing Starts |
Change | New Home Sales |
Change | |
| 2005 | 2068 | --- | 1,283 | --- |
| 2006 | 1801 | -12.9% | 1,051 | -18.1% |
| 2007 | 1355 | -24.8% | 776 | -26.2% |
| 2008 | 906 | -33.2% | 485 | -37.5% |
| 2009 | 554 | -38.8% | 375 | -22.7% |
| 2010 | 587 | 5.9% | 323 | -13.9% |
| 2011 | 609 | 3.7% | 306 | -5.3% |
| 2012 | 781 | 28.2% | 368 | 20.3% |
| 2013 | 925 | 18.5% | 429 | 16.6% |
| 2014 | 1003 | 8.5% | 437 | 1.9% |
| 2015 | 1112 | 10.9% | 501 | 14.7% |
| 2016 | 1174 | 5.6% | 561 | 12.0% |
| 20171 | 1210 | 3.1% | 612 | 9.1% |
| 12017 estimated | ||||
Most analysts are looking for starts to increase to around 1.25 to 1.3 million in 2018, and for new home sales of around 650 thousand.
I also think there will be further growth in 2018. My guess is starts will increase to just over 1.25 million in 2018 and new home sales will be just over 650 thousand.
Here are the Ten Economic Questions for 2018 and a few predictions:
• Question #7 for 2018: How much will Residential Investment increase?
• Question #8 for 2018: What will happen with house prices in 2018?
• Question #9 for 2018: Will housing inventory increase or decrease in 2018?
• Question #10 for 2018: Will the New Tax Law impact Home Sales, Inventory, and Price Growth in Certain States?
from Calculated Risk http://ift.tt/2lpP7sV
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