I said last week that higher new home sales and rising homebuilders’ optimism foretell a strong summer sales season if builders and existing-home inventories don’t run out of housing stock.
The problem is not enough existing homes are for sale, hence the below-normal inventory of total homes for sale, which has spurred new-home construction. We know there is a tremendous housing shortage.
Total existing-home sales – completed transactions that include single-family homes, townhomes, condominiums, and co-ops – slid 3.4% from March to a seasonally adjusted annual rate of 4.28 million in April. Year-over-year, sales slumped 23.2% (down from 5.57 million in April 2022).
That’s a decline of more than one million existing homes sales in just one year.
Calculated Risk’s Bill McBride reported last week that private residential construction spending was down 10.0 percent annually. Non-residential spending is up 21.3 percent year-over-year (i.e., apartments) and public construction spending is up 15.0 percent year-over-year, which is keeping the real estate industry barely alive.
The Calculated Risk graph tell us why. As interest rates rose home sales declined. The sharp rise in interest mirrors the sharp decline in sales over the same time period—beginning January 2022 when everyone knew the Fed was in earnest about suppressing inflation.
There are 1.675 million units under construction, reports McBride, just 35 thousand below the all-time record of 1.710 million set in October 2022.
Of these, there are currently 977 thousand multi-family units under construction. This is the highest level since September 1973, and close to the record of 994 thousand in 1973 (being built for the baby-boom generation).
For multi-family, construction delays are a significant factor because of supply shortages, such as of electrical equipment. The completion of these units should help to lower rents, which puts downward pressure on inflation. Rents comprise a large part of the retail inflation numbers.
"Home sales are bouncing back and forth but remain above recent cyclical lows," said NAR Chief Economist Lawrence Yun. "The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand."
Total housing inventory2 registered at the end of April was 1.04 million units, up 7.2 percent from March and 1.0 percent from one year ago (1.03 million), says the NAR. Unsold inventory sits at a 2.9-month supply at the current sales pace, up from 2.6 months in March and 2.2 months in April 2022, still much too low to satisfy the surging demand for more housing.
The Econbrowser blog puts out an interesting graph that shows what is keeping economic growth from collapsing into recession territory. It’s the rising NFP (nonfarm payroll) number coupled with a surge in industrial production (pink line). Other sectors that the National Bureau of Economic Research (NBER) business cycle dating committee scrutinizes to call a recession—personal income, consumption, and Mfg. & trade sales—have stalled.
This gives a better picture of how much damage to economic growth and housing industry has been caused by the Fed’s battle with inflation; and what signs to look for in coming months of further declines that might trigger a recession call.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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