Housing: Home Prices Continue to Surge Across Nation

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Residential construction picked up in May. Total housing starts rose 3.6% in May to 1.572 million annualized units. At 1.098 annualized units, single-family starts were up 4.2%. Multifamily edged up 2.4%. Building permits fell but remain strong. Shortages of lumber, appliances and other building materials have led many builders to limit the number of homes they start. Lumber prices have started to come down from the lofty highs seen in early May. Lumber supplies have improved recently as sawmills have ramped up production and imports of lumber have picked up. Even if supply shortages continue to pose headwinds for builders, starts are still on track to post gains over the remainder of the year.

New-home sales cooled in May as builders contended with headwinds. Sales of new homes fell 5.9% to seasonally adjusted rate of 769,000 — the second consecutive monthly decline and a 12-month low. Sales fell in the Northeast and South, while the West posted a small increase. Inventories of new homes are still lean. On a seasonally adjusted basis, inventory was higher than in recent months but remains low by historical standards. At the current sales pace, it would take 5.1 months to run out of the supply of new homes for sale. The share of new homes for sale that are not started has jumped to a record high, while the share that is completed has sunk to an all-time low. A jump in the cost of building materials is contributing to higher prices. The median sales price of a new home has surged to $374,400 — a rise of 18% from a year ago.

Existing-home sales may have bottomed out. They fell 0.9% to a seasonally adjusted 5.8 million units. Existing-homes sales are now 14% lower, compared with the near-15-year high in October 2020. Nevertheless, sales are still very strong and remain slightly above their prepandemic level. The inventory of homes available for sale rose 7% from the previous month, but it is still down 20.6% from a year ago. With inventories so lean, homes are selling quickly. They typically remained on the market for 17 days in May 2021, down from 26 days in May 2020. Almost 90% of homes sold in May were on the market for less than a month. Although the momentum in sales has slowed since the third quarter of last year, the housing market remains on solid footing. Pending home sales increased 8% in May, indicating that sales may rise in the next couple of months, after four months of consecutive declines.

Home prices continue to boom but are not in a bubble. The S&P CoreLogic Case-Shiller National Home Price Index rose 14.6% in April from a year ago. With inventories still very low, house prices have risen steadily for nine consecutive months as surging demand put upward pressure on home values across the nation. A growing share of existing properties are being snapped up for more than the original asking price, and the new-home market has so far been unable to relieve the supply-side issues in the existing-home market. Housing demand will likely moderate over the next few months as affordability continues to decline for home buyers.