Supply Constraints Hinder Sales and Affordability


The dominant characteristic of the nation’s housing markets over the last few years has been a lack of resale supply and lagging single-family construction. This dearth of inventory has resulted in price growth, making prospective home buyers more cautious about a potential purchase. Recent sales data reflect these trends.

The volume of new single-family home sales fell 5.3% in June to a seasonally adjusted annual rate of 631,000 — the lowest since October 2017. Nonetheless, the sales total for the first half of 2018 was 6.9% higher than the first half of 2017. Inventory of new homes stands at a healthy 5.7-months’ supply. Existing home sales in June fell 0.6% to a rate that was 2.2% lower than a year ago. However, inventory increased 4.3% in June, 0.5% higher than last year and the first year-over-year gain in resale inventory in three years. Rising inventory of existing homes will help the supply-constrained market, but it also represents a competitive challenge to new construction.

Confidence remained healthy among single-family builders in July, mirroring the second-quarter gains in homeownership, which increased to 64.3%. Economic growth remains positive, with a 4.1% GDP growth rate in the second quarter — the strongest since the third quarter of 2014. However, rising home prices are eroding housing affordability, which has been exacerbated by rising construction costs. For example, lumber prices are 38% higher than they were at the start of 2017. The good news is that they have fallen 16% since mid-May. Managing these constructions costs will be key for enabling additional housing supply.

–NAHB Chief Economist Robert Dietz




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