Cooling Trend for Housing Continues

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

Higher costs, longer construction times and elevated home prices have persistently frustrated buyers, renters and builders. However, recent reports saw an uptick in various housing data.

The NAHB/Wells Fargo Housing Market Index measure of single-family builder sentiment rose four points in October to a level of 80 — its highest reading since July. And new home sales rose 14% to an 800,000 annualized rate in September, although median prices are up almost 19% from a year ago. Existing home sales surged to an eight-month high, while inventory remains at a very low 2.4-month supply.

Housing starts ran counter to these upticks, with overall starts down slightly because of a 5% decline for multifamily starts of five-plus units. Single-family starts were flat at a 1.08 million annualized rate. Although demand remains strong, higher prices have cooled prospective buyers’ intent to purchase a home.

Meanwhile, higher home values have lifted home equity and household wealth, which is largely supporting the home improvement sector. Remodeler confidence is near all-time highs, as reflected in the NAHB/Royal Building Products Remodeling Market Index, which remained at a level of 87 for the third quarter.

Supply-chain issues continue to plague the economy, and NAHB is forecasting these challenges will persist through 2022. Residential construction material prices are up 11% thus far in 2021 and 14% higher than a year ago. Lumber prices — though down 62% from their peak in May — are trending upward yet again, and builders are reporting major delays and higher costs of a broad range of other building products.

Further compounding these issues, lot supplies are as tight as they have ever been, according to a recent NAHB survey that stretches back to 1997.

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