Market Recap: Housing Market Index Drops, Housing Starts and Building Permits Mixed, and Existing Home Sales Slip

Blog posted On June 22, 2018

Mortgage rates have not moved significantly this week, trending slightly upward in some cases.  Home builder sentiment is down, amidst rising construction costs.  Housing starts increased, but building permits declined.  Existing home sales dropped slightly. 

The National Association of Home Builders’ (NAHB) housing market sentiment index is based on a survey of home builders’ outlook on current sales conditions, sales expectations for the next six months, and buyer foot traffic.  Any reading above 50 is considered positive.  Builder sentiment declined in June, down 2 points to a level of 68.  Each component dropped one point, current sales conditions dropped to 75, expectations for the next six months dropped to 76, and buyer foot traffic dropped to 50.  Although limited for-sale inventory has led to strong buyer demand, tariffs on building materials, like lumber, are dampening optimism.  NAHB Chairman Randy Noel explained, “Record-high lumber prices have added nearly $9,000 to the price of a new single-family home since January 2017.”

Housing starts refers to ground broken on residential projects and building permits counts permits issued.  Housing starts accelerated in May, up 5.0% month-over-month to a seasonally adjusted annual rate of 1.350 million, an 11-year high.  Single-family home building in particular increased 3.9% to a rate of 936,000 units.  On the other side, building permits declined, down 4.6% to a seasonally adjusted annual rate of 1.301 million units.  Overall, residential investment has declined as the housing industry faces affordability issues regarding materials costs. 

Existing home sales or resales make up the majority of real estate transactions.  Existing home sales declined in May, down 0.4% month-over-month.  The National Association of Realtors (NAR) blames not enough homes for sale for the lackluster report.  At the current sales pace, it would take 4.1 months to exhaust all available home inventory.  A balanced market will typically have 6 months of home inventory.  Regionally, only the Northeast saw an increase, up 4.6%.  The Midwest dropped 2.3%, the West is down 0.8%, and the South is down 0.4%. 

Housing market conditions have been consistent for the past few years.  Limited available inventory for sale is fueling home price appreciation and bidding wars.  Construction activity struggles to reach its pre-Recession peak.  While buyer demand is strong, rising construction costs could complicate inventory replenishment.  One way to stay competitive in this red-hot market is to get preapproved before you start shopping.  Consult a mortgage professional to determine how much home you can afford and set financing goals. 

Sources: Bloomberg, CNBC, CNBC, MarketWatch, Mortgage News Daily