Housing Market Recovery Gathers Strength
Kiplinger's latest forecast on housing starts and home sales
Residential construction surged in July amid strong demand for new housing. Housing starts rose 22.6% to 1.496 million annualized units in July, following a double-digit increase in June. Total starts are about 23.4% above a year ago. Single-family starts rose 8.2%, while multi-family starts surged 58.4% in July. Single-family starts are now 10% below their pre-COVID level in the first quarter of 2020. 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 data suggest. A gain of 18.8% in building permits indicates that residential construction will pick up in coming months. Builders, however, are facing challenges in growing costs, particularly the prices of lumber. After hitting an eight-month low in April, builder confidence is at all-time highs, according to the NAHB/Wells Fargo Housing Market Index.
New-home sales are now above their prerecession level. They rose 13.9% to a seasonally adjusted rate of 901,000 — the highest since 2006. July’s gain follows a revised 15.1% gain in June and a similar double-digit increase in May. Sales surged in the Midwest, but fell in the Northeast. The inventory of new homes for sale in July declined for the fourth month in a row. There were 299,000 new homes for sale in July — a four months’ supply at the current sales pace. The share of new homes sold priced below $300,000 rose to 41% in July, from 40% the previous month. The construction backlog also jumped. Sales of homes for which construction had not yet started accounted for 29% of total sales over the month, up from 25% in June.
Existing-home sales surged in July, but they will likely slow down in coming months as inventories remain low. These sales rose 24.7% in July to a seasonally adjusted rate of 5.86 million. Compared with a year ago, sales are now up 8.7%. Sharp increases were reported across all regions, with the Northeast and the West driving the surge. On a year-to-year basis, total inventory was down 21.1%, the 13th consecutive decline. It’s unlikely that inventories will improve anytime soon. The reopening of the economy, record-low mortgage rates and pent-up demand from the spring have helped sales of existing homes bounce back. Mortgage purchase applications have risen in recent weeks, signaling that demand for housing is rising steadily.
Home-price growth will rise in coming months. At 4.3%, the S&P CoreLogic Case-Shiller National Home Price Index was unchanged in June from a year ago. Low inventories have prevented house prices from falling further, despite the spring sales slump due to the pandemic. With inventories still very low, home prices will likely continue to rise steadily through the year as surging home demand and lean inventories put upward pressure on prices.
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