Housing can’t shake summer slump
Friday, September 29, 2017
Housing indicators declined for the second month in a row in August. Although activity to date still exceeds that of last year, sales and construction have been losing momentum in recent months, eroding earlier growth projections.
Heading into the final quarter of the year, the industry faces a number of challenges that are stifling its ability to take advantage of a growing pool of would-be buyers.
Following a sharp drop in July, sales of both new and existing homes slipped further in August. New home sales (in units) fell 3.4 percent to their lowest reading since December 2016, down 1.2 percent from a year ago. Existing home sales were down 1.7 percent from July to their lowest point since August 2016, and just slightly ahead of last year.
Dodge Data & Analytics reports new residential construction (in dollar volume) slipped 1 percent in August from the previous month. Single-family construction, however, was up 4 percent for the month. Pending home sales also dropped for the fifth time in six months, by 2.6 percent compared to July, a sign that sales will be weak in September as well.
Escalating prices have become the biggest deterrent to sales. The average sales price of a new home rose to $368,100 in August. The median price of an existing home was $253,500, up 5.6 percent from a year ago.
According to Fannie Mae's Home Purchase Sentiment Index, the portion of consumers who think now is a good time to buy a home declined 5 points from July and is down 16 points compared to last August. High home prices were the main reason for their change in sentiment.
For those prospective owners who can afford to buy, fewer homes are available for them to choose from. Even though more homeowners believe now is a good time to sell a home, the National Association of Realtors says total inventory of existing housing is 6.5 percent lower than it was a year ago, largely because homeowners worry about being able to afford their next home if they sell their current one.
Inventory of new homes continues to drop as the rate of completions has slowed, down more than 10 percent overall between July and August, and more than 13 percent for single family homes. Nonetheless, with fewer existing homes for sale, overall permit requests for new homes jumped 5.7 percent from July to August — just 1.5 percent for single-family homes — and are up 8.3 percent compared to the same time last year. While housing starts for the month held fairly steady (down just 0.8 percent), single-family starts rose 1.6 percent.
With no sign that prices will subside or inventories greatly increase, the NAR recently downgraded its sales projections for the year. It now expects the rate of growth will be lower than last year's.
In addition, it is not clear as yet what the impact of Hurricanes Harvey and Irma will have on the industry for the remainder of the year. The National Association of Home Builders reports that its Housing Market Index, which measures builder confidence, fell by 3 points in September mainly due to concerns that the hurricanes will affect their ability to obtain supplies and skilled laborers, as well as push prices even higher.
Economic conditions are highly favorable at present, and more consumers are wanting to purchase a home. But market conditions are holding them and the industry back.
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