By all accounts, 2018 looks like another strong year for real estate and construction. A report by the USC Lusk Center for Real Estate and Beacon Economics says that rents in Los Angeles County are expected to jump by $136 per month by 2019. Also, the Associated General Contractors of America expects that construction firms will continue to grow in 2018 with three quarters of them planning to add workers.
So what do WE think? The data is there to back up these reports for the following reasons:
- Supply and Demand
In California, experts believe that each year, we are falling behind nearly 25,000 housing units short of where we need to be in terms of providing enough housing for our population increases. Unfortunately, this has been going on for quite a few years, so there is literally a backlog of 100’s of thousands of units required to meet demand- and it’s growing by the day!
- Continued Low Interest Rates
Despite the Fed trying to take away the “punch bowl” of low interest rates, mortgage rates have stayed stubbornly low. The Fed is also expected to be very reluctant to press the brake on the economy until it sees more inflation in the Consumer Price Index. (Although yours truly thinks the CPI is deeply flawed and that there is more inflation than is being reported, but that’s another story.) So we expect interest rates to continue to rise slowly.
- Labor Shortage in Construction
Skilled construction workers are in-demand and are retiring faster than they are being replaced. This is due to a shortage of trade technical programs and perhaps a tendency for millennials to shy away from these types of jobs. I can attest to that labor shortage personally. This causes the rate of construction to slow down because there simply aren’t enough people to get the job done.
All of this and more are going to cause a serious uptick in real estate purchases and market activity this year, but it will be severely constrained by lack of supply and affordability. This lack of supply/affordability should guard against a real estate bubble in most areas. Barring a catastrophic event, we should enjoy a very good year!
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