In spite of the continuing slump in inventory, the government-sponsored enterprise (GSE) expects improvements in the housing market due to rising home prices and elevated demand.
"A decade after the Great Recession, the housing market is rebounding. House prices today are higher than they were at the peak in the summer of 2006, near-record-low mortgage rates have boosted housing demand, and sales volume is robust,” said Sean Becketti, chief economist at Freddie Mac. “The spoiler is the lean inventory of houses for sale. Nationally, just over five months of supply is for sale and hot markets are much tighter than the national average. So far, residential construction is not doing much to fill the gap."
Since the recession, there has been an increase in open construction jobs. The figure was 154,000 as of May, which is at an elevated rate of 2.2% of total employment. Many construction workers laid off during the housing collapse have not returned to the industry, Freddie Mac said, adding that younger workers are less interested in industry jobs than before.
Additionally, Freddie Mac attributed part of the labor problem to opioid use, citing one source which estimated 15% of construction workers used illegal drugs. Subcontractors say that a substantial number of job applicants failed their drug tests. Immigrants, which have comprised more than a quarter of construction workers in the past, are also facing increased enforcement of immigration laws and a less-welcoming environment.
Freddie Mac attributes the increase in development costs to the rapid increase of land prices as well as more burdensome land-use regulations. As a result of higher land costs, entry-level housing has become less profitable and development has since skewed toward higher-end projects. Additionally, builders are facing long delays in permit approvals. For example, strict regulations in Honolulu result in average permit approval of 17 months.
Still, Freddie Mac’s outlook is positive. The sales rebound in May from a relatively weak April, higher year-to-date sales compared to last year, and the continued drop in mortgage rates signal that the market is on track for a strong year.
Low chance of housing-price declines keeps unaffordability a concern
Low supply drives decline in June existing-home sales
Builders are not producing enough homes to meet demand as a lack of skilled labor and an increase in development costs challenge production, Freddie Mac said in its monthly outlook for July.