Demand from prospective homebuyers and lack of supply from the existing home market are expected to boost new home sales and housing starts in 2020 according to data from the latest Health of Housing Markets Report (HoHM Report) from Nationwide economics. Among the positive demand factors are: solid job gains, historically low mortgage rates and above-trend household formations. Additionally, a historically low supply of existing houses for sale are expected to push potential homebuyers to new homes.

While homebuilders are expected to build more next year, Nationwide's chief economist does not expect boom conditions.

"Despite stronger housing demand, homebuilders continue to be constrained by a combination of regulatory changes after the housing bust of 2007 and lack of workers," said David Berson, Nationwide senior vice president and chief economist. "For 2020 we should continue to see a further modest rise in home construction to a new high for the expansion, although it is likely to stay well below the long-run demographic trend of 1.4 to 1.6 million starts per year."

Also holding down home construction during this expansion has been a significant supply of vacant housing units, many of them built during the 2001-2007 housing boom. This large supply of vacant units has taken several years to work through the market, restraining the demand for new construction. The market has mostly worked its way through this oversupply of vacant units, but it remains an impediment to new construction.

Still, a decline in mortgage rates over the past year and solid (if slowing) job growth has helped to reignite housing demand. Coupled with the undersupply of existing homes for sale, the dwindling supply of unoccupied new homes, and an increase in household formations, market conditions are positive for a further rise in new home sales and housing starts in 2020.

National housing market outlook remains positive

The report's proprietary Leading Index of Healthy Housing Markets (LIHHM) index remains well in the positive range despite a slight dip from last quarter. The most recent level of the LIHHM is 106.2, above the neutral level of 100. Rising housing demand continues to be the most important factor for overall market health. Continued declines in mortgage delinquency rates – from ongoing house price gains and reasonable mortgage underwriting regulations – are also a positive factor.

"The U.S. economy remains firmly in the longest expansion in history, and we expect the housing market to continue to do its part in driving positive growth," said Berson. "Millennials, once held down by the worst job market since the Great Depression, are now in a position where they are the primary demographic driving housing demand."

At the regional level, a majority of MSAs have remained stable over the past year, reflecting the stable outlook for the national housing market, and 66 regional markets' scores improved.  

The 10 metro areas with the most positive LIHHM forecasts are, in order: Trenton, N.J.; Hinesville, Ga.; Beaumont-Port Arthur, Texas; Fairbanks, Alaska; Montgomery-Bucks Counties, Pa.; Houston-Sugar Land, Texas; Vineland-Bridgeton, N.J.; Camden, N.J.; Lake-Kenosha Counties, Ill.; and, Pittsfield, Mass.

The 10 MSAs with the least positive LIHHM outlooks are: Kennewick-Richland, Wash.; Yakima, Wash.; Cheyenne, Wy.; Odessa, Texas; Spokane-Spokane Valley, Wash.; Waco, Texas; Joplin, Mo.; San Jose-Santa Clara, Calif.; Walla Walla, Wash.; and, Hickory-Lenoir-Morganton, N.C.