2019 Housing and Construction Market Trends To Watch

As the fourth quarter comes to a close, most of us are starting to look ahead to next year.  And we seem to share the same questions: What will the real estate market be like in 2019? Will home prices keep rising, level off, or drop next year? What about new construction? How are builders and contractors fairing amidst the continuing land and labor shortage? And how will building code changes drive the market? Hericlitus had it right:  The only constant is change. Especially in our industry. Here’s our outlook on 2019.  

9 Housing & Constructions Trends to Watch

Continued Increase in New Home Construction.  The National Association of Home Builders remains optimistic, reporting an uptick in building permits nationwide in 2018.  Dodge Data & Analytics concurs; it’s 2019 Construction Outlook predicts that total U.S. construction starts for 2019 will be $808 billion, staying essentially even with the $807 billion estimated for 2018.

“Over the past three years, the expansion for the U.S. construction industry has shown deceleration in its rate of growth, a pattern that typically takes place as an expansion matures,” said Robert Murray, chief economist for Dodge Data & Analytics. “After advancing 11% to 14% each year from 2012 through 2015, total construction starts climbed 7% in both 2016 and 2017, and a 3% increase is estimated for 2018.”

Home Prices Will Continue Rising. Given the current supply-and-demand situation, it appears likely that home prices in most U.S. cities will continue to rise throughout 2019. This is a continuation of the current market trend, rather than a new development.

According to Zillow, the median home price in the U.S. rose by 8.1% over the past year. They predict that prices would rise by 6.5% over the next 12 months. This forecast was issued in July 2018 and therefore extends into the summer of 2019.

“Strong buyer demand, constrained inventory, and ready-to-buy first timers are the key underlying dynamics driving today’s housing market. The macro-factors that have defined real estate in recent years – strong demand and weak supply – continue to set the tone for the industry,” said Joe Kirchner, senior economist for realtor.com.

Millennials Will Continue to Buy Homes. Why is this important? Millennials make up 34% of American homebuyers in 2017, a greater percentage than any other age group, according to the National Association of Realtors. Around 70% of millennials expect to live in single-family homes by 2020, according to a study from the Urban Land Institute, a real-estate and land-use think tank.  

Great Gains in Home Improvement and Remodeling. Builders and contractors can take remodeling to the bank. Literally. This industry segment is up 8% over 2019 to a whopping $210 billion. Look for this number to continue to rise in 2019 as constrained (and rising) home sales are driving above-average improvements. Demand should remain strong due to rising home prices, increasing wages, and low unemployment.

Mortgage Rates Will Rise. In June 2018, the Mortgage Bankers Association (MBA) updated its long-range forecast. They predicted that average 30-year mortgage rates would rise to 4.9% by the fourth quarter of 2018, and inch upward over 5% in 2019 as well. Economists from Freddie Mac made a similar prediction.

What might the real estate market do in 2019, in response to rising rates? Most likely nothing. The economy is strong and employment is high, so there is steady demand for homes in most housing markets across the country. A modest rise in mortgage rates probably won’t do much to dampen a booming market.

Land & Labor Challenges Will Continue.  Building materials, labor, land, and capital—all essential resources for new residential development and construction—are, when put all together, straining builders’ ability to develop homes affordably.  Each factor is separately undergoing volatility amid global trade disputes, capacity constraint, local land use conflicts, and the negative consequences, in some of housing’s more pricey markets, of tax reform.

Meanwhile, a crackdown on immigration, as well as tariffs on imported lumber, have made it more difficult and expensive for builders to obtain the labor and materials they need to construct homes. That’s especially true in hot urban markets, where land is expensive and zoning is already restrictive.

Solar Energy Continues to Soar.  Long a leader and trendsetter in its clean-energy goals, California took a giant step in 2018, becoming the first state to require all new homes to have solar power. The new requirement, to take effect in two years, brings solar power into the mainstream in a way it has never been until now.

A recent study by Deloitte found that 64% of millennial consumers say “increasing the use of solar power” is their No. 1 priority. And as we have already seen, millennials are making up the largest percentage of homebuyers.

Codes Advance and Air Sealing Goes Mainstream.  Despite the fact that fewer than 13 states have adopted the 2015 IECC, the 2018 IECC Residential Code continues to make energy efficiency a priority with more air sealing measures, better insulation values for building envelopes and windows, and more realistic HERS/ERI scores.

Added to the mix, there are also new state-specific codes with regional amendments (see Michigan, Florida) that are comparable to 2015 IECC, as well as individual municipalities that have adopted the 2015 code requirements themselves.

However, the pattern of code adoption in the US remains rather confusing. This article discusses how 16 states currently do not have a statewide mandate requiring 2009 IECC.

If you’re curious which version of the IECC has been adopted in your area, the best place to visit is energycodes.gov.

Materials, Mother Nature & Disruptive Innovation. Natural disasters and weather hazards seem to be occurring with greater force and frequency, exposing homes to a severe stress test when it comes to resilience, safety, and durability.

According to Forbes.com, this is creating a mass market for materials such as 3D cementitious sandwich panels that can stand up to wildfires, hurricanes, seismic events, and tornadoes.  Also on the radar is 3D printing. Researchers at Oak Ridge National Laboratory debuted this project a few years ago, and are now evaluating the performance of 3D printed molds used to precast concrete facades in a 42-story building!

And let’s not ignore digitally programmed cutting machines called CNC, used to cut structural members of each panelized section of a home. Currently used by off-site home builders Bensonwood Homes, Unity Homes, and Entekra, CNC means precision, speed, and predictability in the building process.  

Some insiders believe that 2019/2020 will be the tipping point for the emergence of integrated factory fabrication of major portions of houses prior to assembly on home sites. It’s an idea we’re excited about pursuing, especially as it relates to tape.  

What are your top building and construction predictions for 2019??