WASHINGTON (July 22, 2021) – Existing-home sales increased in June, snapping four consecutive months of declines, according to the National Association of Realtors®.
But it’s not enough to bridge the supply-demand gap, especially for those entry-level homebuyers in their thirties with families that have lower incomes and credit scores. Lenders haven’t reduced the very stringent credit standards in place since the Great Recession and busted housing bubble that would allow more first-time homebuyers to take advantage of record-low interest rates.
“Total existing-home sales,1 https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 1.4% from May to a seasonally adjusted annual rate of 5.86 million in June. Sales climbed year-over-year, up 22.9% from a year ago (4.77 million in June 2020).”
Will housing construction be able to bridge the huge gap between what is needed and what is available? Not in the near term, as there are too many labor and material shortages, say the homebuilders. Demand is so hot for housing with a limited supply that homes typically sold within 17 days (24 days one year ago), say the Realtors in the NAR’s most recent Buyer Traffic Index.
U.S. home builders started construction on homes at a seasonally-adjusted annual rate of 1.64 million in June, representing a 6.3 percent increase from the previous month’s downwardly-revised figure, the U.S. Census Bureau reported this week. Compared with June 2020, housing starts were up 29 percent, though the year-over-year comparison is skewed somewhat by the effects of the COVID-19.
But that is nowhere near the 2 million residential units under construction in the mid-2000s (see FRED graph), which brought on the housing bubble. But times are much different today, as housing construction almost ground to a halt from the housing bubble and Great Recession that followed. Population growth continued, however, so growth today’s builders are playing catchup.
The June reading of 1.64 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months, says the National Association of Home Builders. Within this overall number, single-family starts increased 4.2 percent to a 1.10 million seasonally adjusted annual rate. The multifamily sector, which includes apartment buildings and condos, increased 2.4 percent to a 474,000 pace.
So how can we increase production? “We’ll need to do something dramatic to close this gap,” said Yun in a press release. And that gap is mainly affordability, as housing prices are increasing in double-digits, while real personal income has averaged some five percent per year.
First-time buyers accounted for just 31 percent of sales in June, also even with May but down from 35 percent in June 2020. This is far below past history when 40 percent were first-timers. Part of the problem is that entry-level buyers tend to have lower credit scores when lenders have maintained very high credit score criteria, averaging above 750 at last report, whereas homebuyers with scores between 680-720 were considered good credit borrowers before the Great Recession and housing bubble.
Realtors have proposed increasing the housing supply by creating or expanding tax credits, loans or grants for builders who renovate or build new housing in low-income areas and who convert old malls and factories into homes. They also asked for incentives for cities to allow denser zoning, an approach that President Biden included in his infrastructure proposal, Reuters reported, as I said last week.
But pressure has to be put on lenders to reduce their sky-high credit standards, as well, to allow those entry-level homebuyers with less available cash and slightly lower credit scores back into the housing market.
Harlan Green © 2021
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
No comments:
Post a Comment