In the News – Supply Constraints Hinder Sales and Affordability
NAHB Chief Economist Robert Dietz provided this housing industry overview in the bi-weekly newsletter Eye on the Economy:
The dominant characteristic of the nation’s housing markets over the last few years has been a lack of resale supply and lagging single-family construction. This dearth of inventory has resulted in price growth, making prospective home buyers more cautious about a potential purchase.
Recent sales data reflect these trends:
- New single-family home sales fell 5.3% in June to a seasonally adjusted annual rate of 631,000 — the lowest since October 2017. Nonetheless, the sales total for the first half of 2018 was 6.9% higher than the first half of 2017. Inventory of new homes stands at a healthy 5.7-months’ supply.
- Existing home sales in June fell 0.6% to a rate that was 2.2% lower than a year ago. However, inventory increased 4.3% in June, 0.5% higher than last year and the first year-over-year gain in resale inventory in three years. Rising inventory of existing homes will help the supply-constrained market, but it also represents a competitive challenge to new construction.
Confidence remained healthy among single-family builders in July, a reflection of the second-quarter gains in homeownership (which increased to 64.3%) and a GDP growth rate of 4.1% — the strongest since the third quarter of 2014.
However, rising home prices are eroding housing affordability, which has been exacerbated by rising construction costs. For example, lumber prices are 38% higher than they were at the start of 2017. The good news is that they have fallen 16% since mid-May. Managing these construction costs will be key for enabling additional housing supply.