Home Sales Remain Solid
Kiplinger's latest forecast on housing starts and home sales
Record-low mortgage rates have helped housing demand recover swiftly from the shock of COVID-19. Home sales have jumped, but a second wave of shutdowns and record-low inventory will likely weigh on existing-home sales. The new-home inventory is healthier and strong sales will prompt single-family starts to reach prepandemic levels by early 2021. Home prices will continue climbing, albeit at a slower pace, through the end of the year.
Residential construction rose modestly in September and building permits hint at a solid fourth quarter. Housing starts rose 1.9% to 1.415 million annualized units in September. Total starts are up 2.8% from a year ago. The weakness in September was mostly in multifamily, where starts dropped 16.3%. Single-family starts rose 7.8%. Permits for single-family homes rose 6%, indicating that single-family construction will continue to rise at a steady pace. But some risks remain for residential construction. Builders are facing challenges from mounting costs, particularly a sharp increase in lumber prices. They’re also still facing a shortage of buildable lots and of skilled labor. Nevertheless, builders’ confidence in the direction of the housing market remains at an all-time high, according to the NAHB/Wells Fargo Housing Market Index.
New-home sales are still on a strong trajectory. They slid 3.5% to a seasonally adjusted rate of 959,000 in August, the first monthly drop since April. Sales plummeted in the Northeast, but rose slightly in the West. Sales also fell in the Midwest and the South. Despite the September dip, sales are up a whopping 32.1% from a year ago. The inventory of new homes rose slightly. 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 3.6 months’ worth of current sales, the supply of new homes for sale is close to all-time lows. The construction backlog also jumped. Sales of homes for which construction had not yet started accounted for 33% of total sales over the month, up from 30% in July.
Existing-home sales continued to rise strongly in September, up 9.4% to a seasonally adjusted rate of 6.54 million. Compared with a year ago, sales are now up 20.9%. The pace of growth has slowed, compared with the double-digit gains in the summer. Increases were reported across all regions, indicating a broad-based recovery in home sales. On a year-over-year basis, total inventory was down 18.2% — the fifteenth consecutive decline. It’s unlikely that inventories will improve any time soon. With inventories so lean, competition for homes has been particularly intense. Homes typically remained on the market for just 21 days in September, down from 32 days in September 2019.
Home-price growth is picking up steam amid strong demand. The S&P CoreLogic Case-Shiller National Home Price Index rose 5.7% in August 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. That said, housing demand has moderated over the past weeks and is likely to ease further as delayed buying from the spring dissipates. Mortgage rates won’t fall much further as they’re already at record lows and lending standards have tightened. These two factors will limit how much buyers can bid up prices.
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