When Will (Housing) Selling Season End?

The Mortgage Corner

It’s already October and the housing market continues to boom—even after the kids are back in school, the usual end of the sales season. Sales of newly-constructed homes dropped 7.6 percent in August, though they beat forecasts. New home sales ran at a 609,000 seasonally adjusted annual rate, the Commerce Department said this morning. That was 20.6 percent higher compared to a year ago. And July’s number, previously reported as 654,000, was revised upward to 659,000, marking the highest total since late 2007.

 Graph: Calculated Risk

So despite the recent softness, housing sales are still climbing, thanks in large part to Janet Yellen’s Fed, which keeps postponing the inevitable next rate hike. The real problem causing the current slowing in sales is lack of inventory.

This graph compares the monthly supply of single-family homes, at 4.4 months in the last two reports, with resales of single-family homes, which came in at 4.70 million in August. When including condos, supply on a monthly basis is at 4.6 months with 3.3 percent fewer resales available, at 2.04 million from July's 2.11 million.

The real strength of this year's housing sector is on the new home side. Housing starts and permits did fall in August, down a sharp 5.4 percent for starts to a 1.142 million annualized rate and down 0.4 percent for permits to 1.139 million. But permit growth for single-family homes, which is a central indication for housing demand, bounced back 3.7 percent from a weak July to a 737,000 rate which, as seen in the red line of the graph, is about as good as it gets, says Econoday.

“The August reading represents a one-month blip in what has been a long-term, gradual recovery,” said NAHB Chief Economist Robert Dietz. “On a year-over-year basis, single-family starts are up 9 percent while multifamily construction continues to level off at a solid level as that sector seeks to find a balance between supply and demand.”

And prospects for ongoing strength in the new home sales report are very solid based at least on the home builders' housing market index which is up a very sharp 6 points this month to 71, a level last matched in October last year.

So the only thing that seems to hold back housing sales is the lack of supply, as we said, and that is due to builders having problems finding construction workers in a near fully-employed economy. What could be better? The surge in new condo sales is a sign that more affordable housing is coming on line, which should help the first-timers, who comprise just 31 percent of existing-home sales at present, down from the 40 percent during more normal times.

Harlan Green © 2016

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