Home construction recoups as sales slump
Wednesday, August 29, 2018
After taking a tumble in June, housing construction got back on its feet in July, with both the number of new starts and permit requests ticking upward. Home sales, on the other hand, continued to slip as prices in many markets approach record highs.
Demand for housing remains high, but would-be buyers are having difficulty finding homes they can afford.
Throughout the year so far, home construction numbers have yo-yoed up and down from month to month. In July, the yo-yo went back up, with the number of new starts increasing by just under 1 percent.
While not a big lift, it was welcome news after numbers fell by 12.3 percent in June compared to May. Single-family construction also rose by the same figure (0.9 percent).
At present, however, construction is down 1.4 percent from a year ago, and the number of completions in June declined by 1.7 percent, down 0.8 percent for the year. That translates into fewer homes to sell.
The good news for builders is that realtors have fewer existing homes to sell as well, which is creating more demand for new homes. Requests for permits were up 1.5 percent for the month, including 1.9 percent for single-family homes. Permit requests are now 4.2 percent over what they were a year ago.
In terms of the dollar value of projects, July also was a good month for residential construction. Dodge Data & Analytics reports the value of all new construction starts fell by 9 percent in July compared to the previous month.
Residential starts, however, grew by 2 percent, with single-family construction rising 3 percent for the month. Overall, residential construction is up 7 percent over last year, including a 7 percent increase in the value of single-family construction.
Even as builders were adding more homes to the market, prospective buyers were holding back. Monthly sales of new homes fell for the second month in a row in July and for the fifth time this year, hitting a nine-month low.
Sales were down 1.7 percent from June, which saw a 5.3 percent decline from May. The price of a new home, which had been receding somewhat in recent months, jumped in July. The median sales price of a new home was $328,700 (compared $302,100 in June) and the average price was $394,300 (vs. $363,300).
That’s less than 2 percent higher than a year ago, but enough to ward off some buyers.
On a month-to-month basis housing numbers tend to show some volatility and are not necessarily cause for concern. New home sales are still up 12.8 percent from a year ago.
Although its measure of homebuilder sentiment, the Home Market Index (HMI), has been dropping gradually since February and is now 4 points lower than it was at the beginning of the year, the National Association of Home Builders states builders remain firmly confident that the solid economy will "spur demand" in the months to come.
More worrisome is the shift in consumer sentiment. Fannie Mae’s Home Purchase Sentiment Index (HPSI) slipped for the second month in a row after hitting a record high earlier in the year.
The proportion of participants who said now is a good time to buy a home fell 4 points, while those who said now is good time to sell also declined, by 6 points. High home prices and low inventories of affordable homes, combined with the concern that mortgage rates will begin to increase and fears of future income insecurity, are sidelining prospective buyers.
According to Richard Curtin, chief economist for the University of Michigan’s Survey of Consumers, "Home buying conditions were viewed less favorably in early August than any time in the past ten years, with home prices judged less favorably than any time since 2006."
Not only home prices, but also the rising cost of many goods is weighing on consumers’ minds as inflation gobbles up what little gains they’ve seen in their pay.
Those sentiments were reflected in the figures for last month’s existing home sales. Sales dipped for the fourth month in a row, by 0.7 percent from June, and are off 1.5 percent from a year ago, the slowest pace in two years.
Pricing was the key factor. Lawrence Yun, chief economist for the National Association of Realtors, recently predicted that existing homes sales for the year will likely come in at around 1 percent below last year.
Real estate website Zillow finds pricing is beginning to ease in many markets: "In two-thirds of the nation’s 35 largest housing markets, the overall share of listings with at least one price cut has risen over the past year," according to a recent study.
It forecasts that price growth will continue to slow into next year. Whether that will be deep enough and fast enough to bring more buyers back into the market, time will tell.
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