Housing Market Recovery Continues
Kiplinger's latest forecast on housing starts and home sales
Residential construction fell in August despite strong demand for new housing. Housing starts fell 5.1% to 1.416 million annualized units in August, following a solid gain in July. Total starts are 2.8% above a year ago. Single-family starts rose 4.1%, while multifamily starts plummeted 22.7% in August. Unseasonably warm weather had led starts to unusually high levels at the beginning of the year, so residential construction is closer to normalizing than the latest data suggests. Permits for single-family homes rose 6%, indicating that single-family construction will continue to rise at a steady pace. Some risks remain for residential construction. Builders are facing challenges from rising costs, particularly for lumber. They’re also still facing a shortage of buildable lots and skilled labor. Nevertheless, builders’ confidence in the direction of the housing market is at an all-time high, according to the NAHB/Wells Fargo Housing Market Index.
New-home sales are booming as low mortgage rates are enticing buyers. New-home sales rose 4.8% to a seasonally adjusted rate of 1.011 million — the highest since September 2006. August’s gain follows double-digit gains in the previous three months. Sales surged in the South, but fell in the Northeast. The inventory of new homes for sale in August declined for a fifth month in a row. Until recently, the inventory of new home for sale had been relatively healthy. At just 3.3 months of current demand, the supply of new homes for sale is at its lowest since records began in 1963. The share of new homes sold priced below $300,000 rose to 47% in August from 41% in the previous month. The construction backlog also jumped. Sales of homes for which construction had not yet started accounted for 34% of total sales over the month, up from 29% in July.
Existing-home sales continued their upward march in August. Sales of existing homes rose 2.4% in August to a seasonally adjusted rate of 6 million. Compared with a year ago, sales are now up 8.7%. The pace of growth has slowed compared with the double-digit gains in June and July. Still, sharp increases were reported across all regions, indicating a broad-based recovery in home sales. On a year-over-year basis, total inventory was down 18.6% - the fourteenth consecutive monthly decline. It’s unlikely that inventories will improve any time soon. With inventories so lean, competition for homes has been particularly intense. Homes have typically remained on the market for just 22 days in August, down from 31 days in August 2019. The reopening of the economy, record low mortgage rates and pent-up demand from the spring have helped existing-home sales bounce back at a remarkable pace.
Home-price growth will continue to rise in coming months. The S&P CoreLogic Case-Shiller National Home Price Index rose 4.8% in July from a year ago. With inventories still very low, house prices will likely continue to rise steadily through the year as surging home demand puts upward pressure on home values.
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