Housing Market Stalled in April
Kiplinger's latest forecast on housing starts and home sales
The housing market hasn’t been immune to the impact of COVID-19. The pandemic and resulting lockdowns have severely curtailed the ability of many households to buy homes, as layoffs and reduced hours hurt incomes. Residential construction also slowed as builders grew cautious amid the slump in demand. Despite the recent data, housing is doing better than expected, given the large hit that the wider economy has taken from the pandemic.
Residential construction fell sharply, while the weakness in building permits in April indicates that housing starts will be in a soft patch over the next couple of months. Housing starts fell 30.2% to 0.891 million annualized units in April. The month’s decline reflects plunges in residential construction activity in large states, some of which did not deem home building an essential business. In the past three months, starts have reversed most of the improvement of the recent recovery. Residential construction was poised to have a solid year, beginning 2020 with momentum, thanks to unseasonably warm weather in the winter months. Single-family starts fell 25.5% in April, while multifamily starts dropped 40.5%. Building permits were weak, too, falling 20.8%. Starts will recover gradually over the next few months as more builders are able to return to work.
New-home sales held steady in April, rising 0.6% to a seasonally adjusted rate of 623,000. Sales in March were revised lower to 619,000. Sales through April are now running 6.2% below their year-ago pace. After rising in March because of the collapse in sales, inventory fell 1.8%. There were 325,000 new homes for sale in April — a 6.3 months’ supply at the current sales pace. The share of new homes sold that were priced below $300,000 rose to 45.7% in April from 43.3% in the previous month. The construction backlog also jumped. Sales of new homes where construction had not yet started accounted for 30% of total sales over the month, up from 23.7% in March.
Existing-home sales plunged in April and will likely bottom out in May. They fell 17.8% in April to a seasonally adjusted rate of 4.33 million. Compared with a year ago, sales are down 17.2%. Sharp declines were reported across regions, although the West and the South were hardest-hit. Existing-home sales were likely affected by social distancing, surging unemployment, the closure of nonessential businesses and low inventory. On a year-to-year basis, total inventory was down 19.7% — the 10th consecutive decline.
Home prices continued to rise at the start of the COVID-19 outbreak. The S&P CoreLogic Case-Shiller National Home Price Index rose 4.4% in March from a year ago, up from 4.2% in February. This is the ninth consecutive month of year-over-year increases. Prior to the outbreak, price fundamentals were strong, as healthy demand for housing and lean inventories pushed up house prices. April’s data will show a better picture of the effects of the pandemic on home-price growth. Despite low inventories and the cheaper cost of home financing owing to low mortgage rates, weakness in the labor market may lead to slower price growth in coming months.
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