US housing starts dropped to a 1.534 million annualized pace last month, the Commerce Department said Wednesday.
That was below estimates. The market was looking for 1.6 million (figure below).
The 7% drop was the first monthly decline since April. Starts were still higher compared to this time last year.
Questions about the health of the US housing market abound. The pandemic boom is clearly abating. Surging prices seem to have finally constrained demand, although mortgage rates remain near record lows.
Earlier this week, the NAHB said homebuilder sentiment dropped to a 13-month nadir in August (figure below).
Builders cited higher construction costs, supply shortages and, of course, rising home prices.
In a separate report, the association described worsening perceptions of affordability. “In the first and second quarters of 2021, the share who can only afford less than half the homes in their markets rose again, to 65% and 71%, respectively,” the report, dated July 28, read. “The increase is new evidence that rising home prices have begun to have a stronger effect on perceptions of affordability than still-relatively low mortgage rates.”
NAHB Chairman Chuck Fowke on Tuesday cautioned that “buyer traffic has fallen… as some prospective buyers are experiencing sticker shock.” He implored policymakers to “find long-term solutions to supply-chain issues.”
Wednesday’s government data showed single-family starts falling to a 1.111 million rate (figure below). That represented a 5% decline from June.
Still, the rate remained above 1 million, where it’s been for a dozen consecutive months.
Permits, on the other hand, beat estimates, rising 2.6% MoM, even as permits for single-family homes fell to a one-year low. The number of single-family homes under construction rose to 689,000. That was the most since 2007.
Ultimately, the narrative is the same: Stratospheric prices have capped demand, and builders are grappling with a familiar list of issues, which together are constraining supply.
When (or if) supply increases, price should drop, thereby reviving demand. Or at least that’s what the textbooks tell us. The plunge in lumber prices from the absurd levels hit earlier this year should help.
For now, though, both anecdotal (e.g., responses to the University of Michigan sentiment survey) and hard data suggest would-be buyers are increasingly skeptical in the face of the highest prices on record.
Housing prices in the most populous regions of the country have been too high for years, propped up by CB buying of MBS, historically low mortgage rates, and a cultural shift in the way Americans view debt. Home prices are too high and will revert back to the mean over the next few years. Maybe that’s the “Y” factor/black swan alluded to by one commenter in a previous post.
Trying to buy a house for our daughter in the NC Research Triangle area. Demand remains high, inventory tight. Desirable properties go in a weekend at an average 13% over listing price. Cooling is not even anecdotal yet.
boston area we’ve seen 3 houses we’ve bid on go $200k over asking
How long do house prices need to persist before we put the prophesy of falling houses prices in the same bin as market permabears?
Back in the late 1960s and early 1970s it was generally felt that housing starts had to hit a million a year to keep the market in balance. However, the population in those days was just over 200 mil, whereas today it is 65% higher but housing starts are roughly the same as 50 years ago. No wonder the prices are so high. To make housing affordable to most people we’d probably need to average at least 1.65 mil per year or more, a level not seen for 15 years.
The rate of growth is cooling but I would guess that if you are looking for a bubble to pop in residential real estate you won’t find it. We bought a house in 2005 in the NY Metro area as an example. The price appreciation has averaged 3% a year compounded since. This past year prices rose between 20-25% in our local market. That is the only reason we hit 3% since 2005. Granted suburban NY has not been the hottest market in the last 15 years, but if you go around the country I will bet it largely reflects what has happened. Minimal appreciation for the first 12 years since 2005, moderate appreciation for 3 years and then a rocket ship for the last year. Credit standards for residential real estate are not really that relaxed, nor is there a proliferation of funky lending products out there.
Seems like a nice fit to the chart of TLT…