The housing market is cooling as is the fall weather. It’s not good news for those needing to live somewhere, given the low for-sale inventory. But interest rates still remain at record lows, with 30-year conforming and super-conforming fixed rates still below 3 percent and affordable for a majority of home buyers.
The construction of multi-family rental housing is also booming, which is good news for renters. It could bring down rental rates, which have been rising as well. Building more rental units may be the best way to cure the present housing shortage, given all the constraints in labor, building materials, and the supply of buildable lots.
Total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 2.0 percent from July to a seasonally adjusted annual rate of 5.88 million in August. Year-over-year, sales dropped 1.5 percent from a year ago (5.97 million in August 2020), reported the NAR.
"Sales slipped a bit in August as prices rose nationwide," said Lawrence Yun, NAR's chief economist. "Although there was a decline in home purchases, potential buyers are out and about searching, but much more measured about their financial limits, and simply waiting for more inventory."
So patience is a virture with the slowing price rises. The median sales price of a single-family home was $356,700, still up 14.9 percent from last August.
“Competition among home buyers has been behind the skyrocketing prices, driving the annual growth rate to a high of 23.6% in May. Since June, the rate has been steadily dropping, decelerating to 23.4% in June and 17.8% in July,” said Shaina Mishkin of MarketWatch.
“The housing sector is clearly settling down,” said chief economist Lawrence Yun, who described the surge of home buying in late 2020 and early 2021 as an anomaly.
Total housing inventory2 at the end of August totaled 1.29 million units, down 1.5% from July's supply and down 13.4% from one year ago (1.49 million), said the Realtors. Unsold inventory sits at a 2.6-month supply at the current sales pace, unchanged from July but down from 3.0 months in August 2020.
Total housing starts increased 3.9 percent to a seasonally adjusted annual rate of 1.62 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
The second Calculated Risk graph portrays years of supply and YoY inventory changes in red and blue lines, respectively. In January 2021 they reached a bottom of -30 percent below January 2020 and have been rising ever since.
So housing construction will have to play catch-up. The good news is single-family housing starts on a year-to-date basis are about 24 percent higher than the same period in 2020, reports the NAHB.
And help is on the way for renters, as I said. The National Association of Home Builders (NAHB) reports strong multifamily production helped push overall housing starts up in August as single-family starts edged lower due to ongoing supply chain issues and labor challenges.
The multifamily sector, which includes apartment buildings and condos, increased 20.6 percent to a 539,000 pace, whereas single-family starts decreased 2.8 percent to a 1.08 million seasonally adjusted annual rate, but are up 23.8 percent year-to-date.
“More inventory is coming for a market that continues to face a housing deficit,” said NAHB Chief Economist Robert Dietz. “The number of single-family homes under construction in August — 702,000 — is the highest since the Great Recession and is 32.7% higher than a year ago. While some building materials, like lumber, have seen easing prices, delivery delays and a lack of skilled labor and building lots continue to hold the market back.”
And though more homes are being built, just 29 percent of sales were for so-called first-timers, the entry-level buyers lowest in age and starting new families. This is the real void looming over an acceptable housing supply.
Unless builders and governments find ways to reduce housing costs, the housing shortage could continue for years and leave a whole generation without the benefits of home ownership.
Harlan Green © 2021
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