This video is the latest in our Monday with Matthew series featuring Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most current US housing data to keep you well informed about what’s happening in the real estate market.


Hi there! I’m Windermere Real Estate’s chief economist, Matthew Gardner, and welcome to the latest episode of Mondays with Matthew.

Today I wanted to take a look at the various housing-related data releases that came out in August, and I’m going to start with the new housing sector and the July figures for housing permits and starts.

New housing permits – and I’m talking single-family permits – fell 1.7% (or about 18,000 units) in July to an annual rate of 1.048 million units and has been declining since March.

But I always like to put things in perspective and you can see here that while we’ve seen a downturn in the last few months, the trend has actually been going up since we got out of the financial crisis in 2011. Of course, COVID had a very pronounced effect on permit activity, but it recovered quite impressively, that is, until the parabolic increase in timber and other costs started to hit builders really hard.

A bar chart and a line chart, both titled

And the delay in permits clearly impacted home start-ups, which fell 4.5% – or 52,000 units – to an annual rate of 1.11 million.

The number of starts fell in most regions, with the exception of the west, which increased by 0.9%. The declines were led by the Northeast (-6.3%), followed by the Midwest (-2.3%) and the South (-2.0%).

But again, for perspective, you can see the longer term trend is still improving, but I’m afraid not to the extent needed to address the massive housing shortage the country is facing.

If you’ve been watching these videos for any length of time, you’ll know that I like to watch homes under construction as opposed to starting homes – which many don’t – because I think it provides a better gauge of the market allowing or launching data. . And for those who may not know the difference between home start and homes under construction: a home is technically started when a foundation has been poured, but that does not mean that it has been built vertically, but homes under construction do show that.

A bar chart and a line chart, both titled

And the number of homes actually built rose 1.5% in July to 689,000 units year on year, which is 33% more than the same time a year ago.

All regions except the Northeast – which fell 1.6% – saw the pace of vertical construction pick up from June, with the South leading the way with an increase of 2.7%. This was followed by the Midwest which rose 1.1%, and the West saw a more modest increase of 0.5%.

Again, looking at longer timelines, the growth is actually quite impressive, but again, it’s lagging well behind demand.

So what I see in this data is that the drop in housing starts was not a surprise as permit activity (which is a leading indicator for starting) has fallen in each of the previous three months. But despite this, the overall pace of home construction remains relatively healthy, with the six-month moving average of homes under construction above the pre-pandemic trend of just over 655,000 units.

While rising material costs, a significant shortage of skilled labor and affordability issues still keep builders up at night, I believe housing fundamentals remain solid, mainly due to an improving labor market environment and still exceptionally low inventory levels.

In addition, a recent easing in mortgage rates and a significant decline in timber prices, which have fallen sharply since their peak in mid-May and are now back at pre-pandemic levels, are also supporting growing new construction activity.

Two line graphs, titled

Moving into new home sales in July and it was a bit of a mixed bag. As you can see here, the number of new homes for sale is continuing its upward trend – bottoming out last fall – rising 5.5% from June and up more than 26% year-on-year past.

This may sound like great news, but when I flipped through the data, I saw a different story. You see, the jump in the number of ads was driven by a record increase in homes for sale yet to be built.

In fact, the number of homes for sale yet to be broken accounted for nearly 29% of the total stock. Why is this? That’s because many builders are very cautious about the market, given the expensive raw materials and the limited supply of land and construction workers.

A map showing US single-family home sales by region.  In the west, 215,000 homes were sold, a change of 14.4% per month.  In the Midwest, 71,000 homes were sold, a negative change of 20.2%.  In the northeast, 22,000 homes were sold, a negative change of 24.1%.  400,000 homes were sold in the Southeast, an increase of 1.3% per month.

On the sell side, contract signings were up 1% from June to a seasonally adjusted annualized rate of 708,000, but that’s down 27% from a year ago.

Last month’s increase in new home sales was due to a 1.3% jump in the populous south and a 14.4% jump in the west, but sales fell 24.1% in the northeast and was 20.2% lower in the Midwest.

There is no doubt that affordability is becoming an increasing problem in the new construction market. The median sales price is up almost 18% from pre-pandemic levels, which is slightly lower than the increase in sales prices in the existing housing market, but still enough to deter potential home buyers.

And cost is another factor — in addition to COVID-19 — accelerating migration to suburban markets and metro areas in lower-cost states like Arizona, Utah, Texas and Florida. But new home sales, on the other hand, have declined in areas where population growth has slowed, due in part to an outflow of residents seeking more affordable real estate, lower taxes and other lifestyle benefits. It will be very interesting to see if this is a trend that continues into 2022.

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Moving on – the National Association of Homebuilders released their Index of Builder Sentiment in August, and the data rather reflects the numbers we just discussed. You can see that sentiment in the single-family market has gradually declined over the past few months, but it remains well above the 50 level, suggesting that more builders see the market as good rather than bad, even if the current index is at its lowest level in 13 months.

And if we look at the components of the index, the terms of sale fell five points to 81 and the component that measures the traffic of potential buyers also fell five points to 60. But the meter that gauges sales expectations in the next six months charted, remained stable at 81.

As we have discussed, builders face significant obstacles and this affects the pace of new developments. According to Freddie Mac, the U.S. housing market is 3.8 million single-family homes short of what it needs to meet the country’s demand, and to catch up, builders would need between 1.1 million and 1.2 million single-family homes per year. need to build to meet the long-term demand, but in reality the start-up rate would need to be even higher to reduce the existing shortage we are currently experiencing.

And what happens to more demand than new supply? That’s right, buyers are turning their attention to the existing housing market and that’s a nice follow-up to the final data set that fell this month, which is existing home sales for July.

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It was gratifying to see that, for the 5e month in a row inventory levels ticked higher and measured unseasonally at 1.32 million units, but I like to watch the seasonally adjusted number which came in at a still respectable 1.0246 million units.

I also like to look at the number of new offers that give a better view of the market – and as you can see here, they are increasing year on year and that makes sales go faster.

You see, the inventory number that NAR issues represents the number of homes that are for sale on a fixed date in the month; however, new listings show the total number of homes that came on the market in that month, and if a sale is agreed in the same month it comes on the market, it won’t be included in the total inventory number.

Three line graphs, titled

And because new listing business is still pretty robust, it has enabled sales, as you can see here. On a seasonally adjusted year-over-year basis, sales came in at 5.99 million, up for the second straight month, but still well below what we saw last fall.

On a monthly basis, single-family home sales were up 1% to nearly 442,000, but multi-family sales were down more than 10%, but were still 15% higher than a year ago.

Three line graphs titled

House prices took a little breather in July, falling 0.8% month on month, but are still 17.8% higher than a year ago.

Single-family home prices also fell 0.8% to $367,000, but are up 18.6% from a year ago and multi-family home sales prices fell 1.3% to $307,100, but were up 14.1 % as of July 2020.

Three line graphs titled

Although we saw a modest increase in the listing stock, the market is still far from balanced. At the current rate of sales, there is only 2.6 months of supply, well below the 4-6 months that is considered balanced, but certainly better than the 1.9 months we saw in January.

The same was seen in the single-family arena, which also showed 2.6 months of supply and things were slightly better in the condo and co-op world where there is currently 3 months of inventory.

As I went through the report in more detail, there were a few more nuggets worth mentioning. It is true that stock levels are slightly higher – which is certainly a good thing – but the market remains remarkably tight.

For example, for every bid on a house in July, there were 3.5 extra bids; half of all bids in July were above list price and as the market remains highly competitive, the number of cash bids increased from 16% a year ago to 23% in July. And with 89% of homes pending in the same month they’re on the list, and the average number of days on the market being just 17, we’re still pretty far from experiencing a normal housing market.

I hope you found this month’s discussion interesting. As always if you have any questions or comments on this subject please do get in touch but in the meantime stay safe out there and I look forward to seeing you all again next month.

Day.

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