® was out Thursday with a report, "State of the Housing Union," that shows the strong U.S. economy and unprecedented housing shortage pressuring potential home buyers striving to attain home ownership. According to the analysis, strong buyer demand, constrained inventory, and ready-to-buy first timers are the key underlying dynamics driving today's housing market.

"The macro-factors that have defined real estate in recent years – strong demand and weak supply – continue to set the tone for the industry," said Joe Kirchner, senior economist for®. "The new tax law that caps the mortgage interest deduction and the deductibility of state and local taxes can be expected to impact the upper-end market in 2018 – precisely how and the extent of which remain to be seen." State of the Housing Union infographic (PRNewsfoto/
Hand-out State of the Housing Union infographic (PRNewsfoto/

Leading indicators point to a solidly upbeat U.S. economic story. Consumer confidence has spiked, according to the Conference Board's consumer confidence index, as unemployment fell to its lowest level since 2000 (4.1%) and the economy added jobs for a record 86th consecutive month, according to November data from the U.S. Labor Department. At the same time, the U.S. stock markets reached all-time highs over the last few months and retail sales (dollars spent in stores, in restaurants and online) capped a strong year with 2017 holiday sales that increased more than 5.5% year over year, according to the National Retail Federation.

Nevertheless, sales growth of existing U.S. homes actually cooled, only increasing 1.1% in 2017 as compared to a 3.8% gain the previous year. Prices appreciated 5.8% on average during 2017, compared to 5.1% a year earlier.

Inventory fell 8.8% nationally in the 12 months ending Dec. 31, 2017 versus a 10.7% dip during the comparable period a year earlier, and tight supply was the single biggest factor affecting the market. Even a sharp increase in new construction – single-family housing starts jumped 8.4% and 10.2% the previous year – couldn't offset inventory shortages.®data shows millennial aspiring first time home-buyers fell victim to the inventory pinch in the last 12 months. Spurred on by steady employment and life events, such as getting married and starting a family, many of these buyers actively pursued home purchases but hit the wall of tight inventory. With the majority of new construction in mid to upper tier price points, new homes have provided very limited relief to these would-be home owners.

"Builders will need to focus more on homes geared for moderate incomes, partner with the government on initiatives to transform distressed urban neighborhoods and overcome labor shortages through a combination of workforce development training and pressure to ease artificial restrictions on the supply of labor," added Kirchner.

In a comparison of red and blue states, blue states saw higher home price growth last year, at 9.1%, than red states, at 5.9%. They also saw stronger sales growth at 1.6% versus 0.7% in red states.

Blue states – California and Illinois and the tri-state region of New York, New Jersey and Connecticut, for example – skew more urban and suburban than largely rural red states. Highly developed cities, towns and neighborhoods in blue states make finding buildable property extremely challenging, especially with demand at current levels. This supply-and-demand dynamic is the principal reason price appreciation in blue states outstripped price increases in red states in 2017.

Blue states also have some challenges ahead with the tax bill. Last year, 2.5% of all mortgages in blue states were more than $750,000 and will be directly impacted by the capping of the mortgage interest deduction in 2018. Conversely, only 0.4% of mortgages in red states will be impacted.