When you see headlines about home-sales volumes hitting nine-month lows, read carefully. Likely, the article is referring to new-home sales, or the number of newly built, single-family homes. According to the National Association of Realtors (NAR), sales in this sector are at their lowest level since last October. Furthermore, existing-home sales are also slowing in pace, warned NAR economists.
Construction Costs are Hurting New-Home Sales Inventory
Randy Noel, chairman of the National Association of Home Builders (NAHB), blamed the declining rate on a lack of inventory. He said the relatively low volume of inventory “is pushing up home prices, which is hurting affordability and causing prospective buyers to delay making a home purchase.”
However, NAHB senior economist Danushka Nanayakkara-Skillington said, “We continue to see solid housing demand due to economic strengthening and positive demographic tailwinds.” She recommended builders manage construction costs in order to keep homes in their new developments competitively priced. The median price of new homes was nearly 2% higher this July. Labor and materials costs continue to rise as well.
The Federal Reserve is Watching
Most agree that the housing market is not due for a crash like the one it experienced in the mid-2000s. The Federal Reserve does appear to be taking note, however. According to the last Fed meeting notes, housing starts and permits, sales of new and existing homes, and affordability were all topics of discussion.
As long as new construction continues to lag, investors in big builders are likely to continue to falter as well. “Shares of most big builders are down by double digits since the start of the year,” observed MarketWatch reporter Andrea Riquier. She noted PulteGroup has lost about 12%, and Taylor Morrison is down nearly 20%.