Constraints keep lid on housing industry
Friday, August 25, 2017
Market conditions continue to keep pressure on the housing industry. Tight inventories and rising prices put a crimp in housing starts and sales in July, eroding some of the gains made in June. Demand is high, as is consumers' confidence in the economy and their future prospects.
Would-be buyers, however, are struggling to find and close on affordable, desirable properties. That may be a boon to builders, who are optimistic business will pick up in the coming months.
Once again, the housing market is riding the roller coaster of sales highs and lows, with no indication of when the ride is going to end. July is typically a slow month for home sales. Nonetheless, after plummeting 5.5 percent in May, then rebounding 8.3 percent in June, housing starts again dropped in July, by 4.8 percent, compared to a downward revised June figure.
Most of that decline occurred in the multifamily sector. Starts of single-family homes slipped only slightly, by 0.5 percent. With only two positive months of growth in the past seven months, housing starts (in volume) are now down 5.6 percent from last July.
New permit requests also fell by 4.1 percent, but are 4.1 percent higher than the same time last year. Requests for single-family permits stayed at the same level as in June, perhaps indicating that the monthly swings may be starting to stabilize. Dodge Data & Analytics also reports new single-family starts (in dollar value) in July remained more or less flat, following upon a 4 percent decline in the second quarter, but are up 9 percent year over year.
Sales of new homes, which declined 4.9 percent in May, then rose 7.4 percent in June, nosedived 9.4 percent in July — the lowest point in the past seven months, and are down 8.9 percent from a year ago. Existing home sales slid for the second month in a row, by 1.3 percent, following a modest uptick in May of 1.1 percent, before dropping 1.8 percent in June.
To date, existing home sales are still 2.1 percent higher than at the same time last year. Single-family sales eased down 0.8 percent, to their lowest point so far this year, although they, too, are up 1.7 percent over last July.
Demand remains strong, especially among first-time buyers. Yet, as NAR Chief Economist Lawrence Yun explained, "Homes are selling fast, but the negative effect of not enough inventory to choose from and its pressure on overall affordability put the brakes on what should’ve been a higher sales pace." Prices, said Yun, "are still rising above incomes and way too fast in many markets."
As most consumers' wages and household income remain relatively stagnant, the median sales price for a new home increased 6.3 percent above that of July 2016, to $313,700, well beyond the median price paid last month for an existing single-family home, $260,600, which itself was up 6.2 percent from a year ago.
One of the reasons for rapidly increasing prices is near-historic lows in inventories of both new and existing homes for sale. Real estate website Zillow reports the housing market has now sustained two years of continued inventory contractions. Redfin states that inventories of homes for sale in July were down 11 percent.
In addition, interest rates on conventional 30-year mortgages are beginning to creep upward, putting further pressure on prospective buyers already faced with increased down payment costs due to higher prices.
Despite these rather-daunting head winds, builders expressed renewed optimism that sales of new homes would pick up in the coming months.
The National Association of Home Builders announced its Housing Market Index, which tracks builder confidence, rose 4 points in August compared to July. The NAHB attributes the boost to increased buyer traffic last month, improved sales conditions and continued indicators of job and economic growth that buyers believe will translate into future sales. NAHB Chief Economist Robert Dietz foresees "gradual strengthening in the housing market."
At present, dwindling inventories of existing homes for sale would seem to bode well for builders, as prospective buyers turn to the new home market for relief. The challenge will be delivering those homes at an affordable price, a factor with which builders are already struggling with as the cost of labor, lots and materials continue to rise.
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