Gardner jumps right into the data releases that came out in August and starts with the new housing permits and starts. New home permits (single family permits) fell by 17% in July and they have been heading backwards since March. Although we have seen a pull back over the past few months the trend is actually heading higher since we emerged from the financial crisis back in 2011.
The slow down in permits has impacted housing starts, which dropped by 4.5%. Starts fell across most regions with the exception of the West which increased by .9%. Gardner’s perspective is that the longer term is still improving, but not to the degree needed to address the massive housing shortage that the country faces. The number of homes actually being built rose by 1.5% in July, which is 33% higher in the same time a year ago.
The pullback in housing starts is not a surprise given the permit activity, but despite this, the overall pace of new home building actually remains relatively healthy with a six month moving average of homes under construction coming in above the pre-pandemic trend. Although there is a rise in material costs and affordability challenges, the fundamentals for home building remain solid.
Additionally, a recent ease in mortgage rates and a significant pull back in lumber prices (which have fallen sharply and are back to pre-pandemic prices) also provides support for growing new construction activity.
Moving on to new home sales in July, the number of homes for sale continue its upward trend and have risen by 5.5% versus June and is up over 26% compared to last year. The jump in listings was driven by a record rise in homes for sale that have yet to be built, which counted for over 29% in total inventory.
According to Freddie Mac, the US housing market is 3.8 million single family homes short of what’s needed to meet the countries demand. To catch up builders would have to construct between 1.1 and 1.2 million single family homes each year to meet long-term demand.
With more demand than new supply, Buyer’s turn their attention towards the existing home market. For the fifth month in a row inventory levels ticked higher and the number of new listings are up year over year.
Since new listing activity is still pretty robust, it has allowed sales to tick back up. On a month over month basis, home sales have risen by 1%. Home prices took a little bit of a breather in July and dropped by .8% month over month but they are still 17.8% higher than seen a year ago.
Overall, we are still quite far away from experiencing a normal housing market..