2 Significant Headwinds for Housing’s Growth

Economics
Published

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

New single-family home sales in June declined 6.6%, falling to a 676,000 annualized rate. Although new home sales are 13.5% higher on a year-to-date basis compared to 2020, the June data marked the third consecutive monthly decline.

The reasons why sales have softened since the end of 2020 have generated an ongoing debate in the media.

Some have noted that builders are limiting sales because of a lack of inventory and higher construction costs. Others claim that higher home prices (new home prices are up 10% since January 2020) have priced many buyers out of the market.

Both of these claims have merit. Supply-side factors (particularly materials, labor and lots) are holding back housing supply, with ready-to-occupy new home inventory down 44% over the last year to just 34,000 homes.

Moreover, NAHB survey data indicate buyers’ perceptions of housing affordability are waning, and rightfully so: The share of buyers who can afford less than half the homes available for sale worsened from 63% at the end of 2020 to 71% by midyear.

During the second quarter, pricing was the No. 1 reason active buyers did not make a home purchase. Given higher construction and development costs, and the potential for higher interest rates in the coming years, these variables are worth watching.

Meanwhile, multifamily rental demand is growing and the apartment construction market is expanding.

Ultimately, higher interest rates will depend on the pace of economic growth and the future of monetary policy in an environment with growing uncertainty. Second quarter GDP growth came in at a somewhat lower-than-expected rate of 6.5%. NAHB is forecasting continued economic growth in 2021, resulting in an overall growth rate just below 7% for the year, which would mark the best rate since 1984.

However, because of choppy conditions, including concerns over the delta variant, the Federal Reserve continues its dovish approach to monetary policy.

For its July meeting, the Fed held the federal funds rate near a zero rate and did not provide guidance on a future tapering of Treasury and mortgage-backed security (MBS) purchases. Fed Chairman Powell notably stated that when a taper does occur (which we expect will happen this fall), the reduction of MBS purchases will not occur without a reduction for Treasuries as well.

To subscribe for free to Eye on the Economy, please email [email protected].

Subscribe to NAHBNow

Log in or create account to subscribe to notifications of new posts.

Log in to subscribe

Latest from NAHBNow

Economics

May 23, 2025

Volatile Spring Selling Season Continues

Sales of newly built, single-family homes in April increased 10.9% to a 743,000 seasonally adjusted annual rate from a downwardly revised March number, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in April was up 3.3% compared to a year earlier.

Material Costs

May 22, 2025

NAHB Members Cite Impact of Tariff Uncertainty on Home Building

Tariff uncertainty from the Trump administration continues to impact home builders across the country, as builders prepare for potential price hikes and supply chain issues. NAHB members have been sharing the impact that these tariffs are having with media outlets across the United States.

View all

Latest Economic News

Economics

May 22, 2025

Existing Home Sales Fall in April

Despite the brief retreat in mortgage rates and increased supply, existing home sales dropped to 7-month low in April, according to the National Association of Realtors (NAR). This unexpected decline suggests buyers’ activity continues to be constrained by economic uncertainty and ongoing affordability challenges even with improved market conditions.

Economics

May 22, 2025

Income Growth Helps Mute Existing Affordability Constraints

Despite solid income gains and lower home prices, Americans still continue to face major housing affordability challenges, according to the latest data from the National Association of Home Builders (NAHB)/Wells Fargo Cost of Housing Index (CHI).

Economics

May 21, 2025

Gains for Multifamily Missing Middle over Last Year

The missing middle construction sector includes development of medium-density housing, such as townhouses, duplexes and other small multifamily properties.