Strong home price appreciation last year led many to wonder if housing was unsustainably strong. I thought not and in November 2018 wrote Housing Forecast: Not A Bubble In 2019. This update shows that housing will continue to soften, though not quite so much as previously expected.
The most important factor determining housing construction and pricing is the underlying demographics. Housing is mostly built to accommodate new residents; just a little new construction replaces demolished or abandoned housing. My first gauge of the housing market is construction relative to population growth. The accompanying chart shows how many housing units were started per 100 new residents. New residents come from births in excess of deaths, plus net foreign immigration. The population data include estimates of illegal immigration, though there’s obviously some uncertainty there.