Supply Constraints Hinder Sales and Affordability

Filed in Business Management, Economics by on August 3, 2018 4 Comments

NAHB Chief Economist Robert Dietz provided this housing industry overview in the bi-weekly newsletter Eye on the Economy

housing economicsThe 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:

  • 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, a reflection of the second-quarter gains in homeownership (which increased to 64.3%) and a GDP growth rate of 4.1% — 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 construction costs will be key for enabling additional housing supply.

For more, go to Eye On Housing.


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Comments (4)

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  1. Norman Hyman says:

    Trump’tarffs on Canadian soft lumber dont protect any domestic ptoduct. They are simply a burden on affodable housing.

    • David Koster says:

      I agree completely. It should also be noted that lumber prices (before the last few days of decline) is u over 60% since January of 2017. Tariffs are 20% so clearly something else is going on here and I believe large domestic producers are exporting lumber and using tariffs as an excuse to raise prices above that justified by tariffs.

      But tariffs are terrible and are clearly hurting affordable homes disproportionately, which is largely the product that I build. Our customer have simply been priced out of the market.

  2. Joe Honick says:

    Of course Mr Hyman is correct. The sudden array of tariffs not only will NOT help housing but may well cost tons of jobs in the distribution sector that have grown out of free trade deals that the President seems not to know much about.

    • David Koster says:

      Tariffs are terrible and can have unintended consequences like the lost jobs in the supply chain as you mention. I am against them. I am not a huge Trump fan by any measure. But can we, in the interest of full disclosure, at least admit that we have’t had “free trade” ever. The better description is “trade as usual” which was good for some and bad for others.

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