Home-Price Growth Picking Up amid Tight Inventories

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Residential construction remains close to its post-recession high. Total housing starts fell 3.6% in January to a seasonally adjusted rate of 1.567 million. January’s decline, however, reversed little of December’s substantial gain and leaves starts near their highest level since December 2006. Single-family starts fell 5.9%, while multifamily starts increased 0.7%. Unseasonably warm weather is one of the main factors driving recent gains in residential construction.

New-home sales strengthened in January. They rose 7.9% to a seasonally adjusted rate of 764,000 — the highest level since 2007. There were 324,000 homes for sale in January, 5.1 months’ supply at the current sales pace. Sales continue to outpace inventory growth and the number of new homes listed for sale has trended down since January 2019. With tight inventories pushing prices up, the share of new homes sold for less than $300,000 fell to 42% in January from 44% a year ago. Inventories of new homes for sale have fallen significantly over the past year and are now more in line with home builders’ preferences. With mortgage rates low and builder optimism rising, new-home sales should have a solid year.

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

Existing-home sales are rising amid falling inventory. Sales of existing homes slipped 1.3% in January to a seasonally adjusted rate of 5.46 million. Compared with a year earlier, however, sales are up 9.6%. Existing-home sales have bounced around recently, posting small gains and small losses over the past six months. Homes continue to sell fairly quickly, averaging 43 days on the market. Many are selling much quicker than that, with 42% of homes sold in January staying on the market for less than one month. With supply lacking, existing-home sales will likely remain subdued as inventories remain at record lows. On a year-to-year basis, total inventory was down 10.7% — the seventh consecutive decline.

Home-price growth is edging higher after a weak 2019. The S&P CoreLogic Case-Shiller National Home Price Index rose 3.8% in December from a year ago, up from 3.5% in November. This is the second consecutive month of faster price increases and the sixth consecutive month of year-over-year increases. Low borrowing costs and tight inventories will keep pushing prices up.

Sources:

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