Will real estate prices continue to rise?

Real estate prices are surging across the country, but will that trend continue? Based on several factors, I believe that will be the case. Builder sentiment is at the highest levels in almost 20 years. Housing starts has been steadily climbing since 2009, but it has a way to go before it will even reach the long-term average level of just over one million units (see Figure 1). Sales of new single family residence (SFR) homes has recovered from a low of 270,000 in February 2011, to over 730,000 units in November 2017.

Figure 1. Housing Starts, 1959 to 2017 (source: Federal Reserve Economic Data)

Other economic factors also continue to put pressure on housing prices. Foreign Direct Investment (FDI) affects housing prices, as Chinese and other non-US entities complete for purchasing real estate in a low inventory market. Near full-employment (less than 4% unemployment) means that more households are competing for home purchases. And inflation, as low as it has been for the past few years (below 2%), will also begin to put pressure on prices of all products and commodities, and those increases will be reflected in new home prices.