Dive Brief:

• Home values continued to climb in December, with Zillow’s Home Value Index reporting a 6.8% year-over-year increase in the median U.S. home value to $193,800, the highest since April 2007. 

• That trend is expected to continue into 2017, but an easing in rent increases could take some pressure off the market and allow inventory to grow slightly. Limited housing stock will continue to challenge buyers — and builders — in 2017, with Zillow reporting a 4.6% drop in available homes from a year ago.

• Portland, OR, reported the fastest appreciation in the U.S. at 13.8% year-over-year in December, though that rate is pulling back. Tampa, FL, Seattle and Dallas also reported home value increases near 12% during the month from December 2015.

Dive Insight:

The residential construction market ended 2016 on a high note as the demand surge squeezed the supply pipeline, propelling prices upward and leaving builders facing strong supply-side head winds as they hedge when to gear up.

In September, the National Association of Realtors reported that eight in 10 U.S. metros lacked sufficient single-family housing stock to meet demand and it called on construction companies to boost building activity, particularly around the entry-level category.

Further home-value increases are expected to support the home renovation and design market this year, with Houzz’s recent 2017 forecast finding that companies in the sector expect revenues to grow an average of 10 to 12% this year compared to 8 to 10% in 2016.

However, an increase in activity is already raising challenges for builders amid a deepening shortage of labor that is elevating costs, while dwindling levels of available lots remain and lending and regulatory concerns linger.

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