Rising interest rates and declining housing affordability caused housing demand to weaken slightly this summer. On a seasonally adjusted annual basis, the pace of new home sales in each of the previous three months was slower than any other month so far this year. This soft data for both sales and single-family starts coincided with declines in resale activity, as some buyers pulled back from a market that saw notable increases in home prices largely driven by low inventory. The softening demand has also led to a recent deceleration of home price growth.
Nonetheless, the single-family and multifamily markets continue to expand. Multifamily starts are up 8% on a year-to-date basis through August. Single-family starts are up 6% and new, single-family home sales are up 7%. Home builder confidence continues to be solid, and macroeconomic conditions remain strong, with improved GDP growth and a hot labor market.
Looking forward, NAHB is forecasting continued, modest growth for residential construction, tempered by rising interest rates. Indeed, the Federal Reserve raised the federal funds rate by 25 basis points this week — the third such rate hike of 2018. While this indicates the economy is continuing to perform well, it is also a sign that the cost of buying a home will continue to increase in the months ahead.
–NAHB Chief Economist Robert Dietz