Housing: Sales, Starts Will Start 2021 on Solid Footing
Kiplinger's latest forecast on housing starts and home sales
Residential construction isn’t showing signs of slowing down. Housing starts rose 1.2%, to 1.55 million annualized units, in November. Total starts are 2.8% higher than a year ago. Single-family construction continues to drive activity, rising for the seventh consecutive month. Multifamily construction, however, has also picked up in the past two months. Single-family starts rose 0.4% and multifamily rose 4% in November. Multifamily starts have moderated this year as construction of apartment buildings has slowed down, particularly in urban centers. Homebuilder confidence is still strong, but the National Association of Home Builders’ measure of confidence fell from its record high. This is likely because worsening affordability is starting to weigh on demand for new homes. With mortgage rates unlikely to fall further and housing prices continuing to rise, some prospective buyers will likely be discouraged.
New-home sales have cooled a little in recent months. New-home sales slid 11% to a seasonally adjusted rate of 841,000. This is the fourth consecutive monthly decline. Sales fell sharply in the Midwest and the South. Sales in the Northeast were little changed, while they fell modestly in the South. Despite the monthly decline, new-home sales are still among the highest since 2007. Inventory is lean and won’t improve much over the next few months as builders are slowly bringing more properties to the market. At just 4.1 months, the supply of new homes for sale is close to all-time lows. The tight inventory will likely weigh on sales as buyers struggle to find suitable properties on the market.
Existing-home sales fell in November after five months of strong gains. Sales of existing homes fell 2.5% in November to a seasonally-adjusted rate of 6.69 million. Compared to a year ago, sales are now up 25.8%. While the number of homes sold fell, homes are selling as quickly as ever. On a year-to-year basis, total inventory was down 22%. It’s unlikely that inventories will improve any time soon. There was just a 2.3 month supply of homes in November. With inventories so lean, competition for homes has been particularly intense. Homes typically were on the market for just 21 days in November, down from 38 days in November 2019.
Home prices continue to rise amid a shortage of inventory. The S&P CoreLogic Case-Shiller National Home Price Index rose 6.5% in October from a year ago. With inventories still very low, house prices have risen steadily through the year as surging home demand has put upward pressure on home values. That said, housing demand likely will moderate over the next few months as affordability declines. Mortgage rates are already at record lows and lending standards are unlikely to loosen as lenders remain cautious. These two factors will limit how much buyers can bid up prices and will lead to smaller price gains next year.
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