Inventories of New Homes Inch Up

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Housing starts rose in August, but building permits indicate that residential construction will remain in a soft patch. Total housing starts rose 9.2% in August to a seasonally adjusted annual rate of 1.282 million. Both single-family and multifamily starts increased. Most of the gain came from the volatile multifamily segment. Multifamily starts climbed 29% from the previous month, while single-family starts rose just 1.9%. Both categories remain below the pace seen earlier this year. Permits for new residential construction fell 5.7% in August. Permits are now running below starts. The rising cost of building materials and shortages of land and labor have left builders unable to ramp up construction, particularly for starter homes.

New-home sales rebounded in August, led by a resurgence of sales in the West. They rose 3.5% in August to a seasonally adjusted annual rate of 629,000. The number of new single-family homes on the market increased slightly and is 13.2% higher than a year ago. It would take 5.6 months to sell through that inventory at today’s sales pace — the ninth consecutive month that the inventory-to-sales ratio has remained above five months. Inventories of new homes remain tight, but they have been climbing in the past few months. If this situation continues, it should help curb price growth.

Existing-home sales were flat in August, remaining unchanged from July and rising at a seasonally adjusted annual rate of 5.34 million. Sales have remained sluggish for the past five months because of supply-side issues. On a year-to-year basis, sales have dropped for six consecutive months; the main reason is that listings remain scarce after bottoming out earlier this year, particularly in parts of the nation where economic growth has been strongest. Many homeowners remain reluctant to put their homes up for sale because of the fear that they will have a hard time finding a suitable home to buy. On a year-to-year basis, total inventories remained flat last month. With the relatively low stock of homes for sale, it would take just 4.3 months at the current pace to sell through it. Properties stayed on the market for 29 days on average in August, down from 30 days a year ago. While existing-home sales will improve from their current pace, they will finish at levels slightly lower than in 2017.

See Also: A Housing Shortage Looms as Builders Can't Keep Up

Home values will continue to climb over the next year because of the scant inventory, albeit at a more subdued pace. The S&P CoreLogic Case-Shiller National Home Price Index rose 6% in July from a year ago, down a tad from the year-over-year gain in June. Price growth across the nation has slowed in the past three months. The sizable increase in mortgage rates since the start of the year is hindering buyers and has slowed down the pace of house price appreciation. Nevertheless, low inventory is counteracting the slower price growth. As a result, many metro areas remain more favorable for sellers. Western markets with the leanest inventories are seeing the largest gains, spurred on by booming populations and employment growth. Las Vegas saw the largest annual price increase at 13.7%, followed by Seattle at 12.1% and San Francisco at 10.8%.

Mortgage rates have risen from their lows reached in 2012 and will keep on climbing, to 4.8% on the average 30-year fixed-rate loan. The average spiked to 4.72% this week — the highest since April 2011. Tighter monetary policy from the Federal Reserve has put upward pressure on rates this year.

Sources:

• National Association of Realtors: Existing-Home Sales
  
• Department of Commerce, New-Home Sales
  
• Department of Commerce, Housing Starts