What pandemic? The housing market has been on fire lately and shows no signs of slowing. Similar to the stock market, housing prices keep rising and will help buoy the ongoing economic recovery.
According to the National Association of Home Builders (NAHB), new home sales in August grew by 4.8% over July, and is…wait for it…43% higher than the August 2019 rate. This is the highest new home sales rate seen since 2006. Redfin also released data showing resale home prices increased 14% year-over-year from 2019.
According to NAHB, “The gains for new home sales are consistent with the NAHB/Wells Fargo HMI, which soared to an all-time high of 83 in September, demonstrating that housing is the leading sector for the economy.”
…and as you can see supply and inventory are down, which also increases demand and prices.
The question now is, what will home prices do moving forward and will we see an unhealthy increase in home values in the coming years. Logan Mohtashami of Housing Wire puts it eloquently: “My biggest concern for housing in 2020-2024 is that real home prices could take off. Good housing demographics, housing tenure at 10 years and low mortgage rates are a perfect recipe for unhealthy home-price growth. The median sales price is now 11.4% higher than a year ago. I’m not saying that home-price growth will somehow morph into a speculation bubble like it did in the 2000s — our credit lending standards will prevent that — but housing could become considerably less affordable even with low mortgage rates if this continues.”
Further illustrating this point, Zillow last week also raised its housing price outlook, from a 3.8% forecast for 2021 to 4.8%.
New constructions down
New home construction is also down, which puts downward pressure on the supply of housing, meaning prices will stay high for the foreseeable future. According to new Census Bureau data:
- 📉 Building permits are down almost 1% from July.
- 📉 Housing starts are down 5.1% from July.
- 📉 Housing completions are down 7.5% from July.
Diana Olick of CNBC picks up on the news, noting that “Sales of newly built homes jumped to the highest level in 14 years in August, but builders’ supply dropped to just 3.3 months’ worth at the current sales pace. A six-month supply is considered a balanced market. Supply was at 5.5 months in August 2019…The situation is even worse in the market for existing homes. It’s down nearly 19% annually to a three-month supply.”
Demand is robust, supply is not, and the pandemic didn’t help builders considering labor was difficult to obtain and maintain, and housing materials have increased dramatically.
According to new Redfin data, “The new-homes market is recovering—with sales on the rise—but hurdles including a lumber shortage are still hampering builders.”
Couple all this with Prashant Gopal’s excellent Bloomberg piece re-published in the Los Angeles Times titled, U.S. housing boom threatened by short supply of homes to buy.
Wages and affordability
So we have rising prices, dropping supply, and slowing inventory levels in both the new construction and resale markets. This is not good news for affordability.
According to ATTOM Data Solutions’ newly released Q3 2020 U.S. Home Affordability Report, homes are less affordable now than historical averages in 63% of US counties, up from 54% in Q3 2019. Further, “compared to historical levels, 308 of the 487 counties analyzed in the third quarter are now less affordable, up from 262 of the same group of counties in the third quarter of 2019.”
Further, according to ATTOM Data Solutions, housing price appreciation is outpacing wage growth in almost 90% of US housing markets. The most affordable markets for Q3 2019 are as follows:
Source: ATTOM Data Solutions