Sales of new single-family homes in September were at a seasonally adjusted annual rate of 959,000 units, according to a report out this week from the U.S. Census Bureau. That was worse than the consensus forecast and by most measures the first disappointing real estate datapoint seen during the post-lockdown recovery. Some kind of moderation, though, was to be expected eventually given how rapid the rebound in this space has been, and overall the U.S. housing market is still easily outperforming other areas of the economy. For example, existing home sales, which account for a much larger share of total real estate transactions than new home sales, not only continued to grow in September but again easily eclipsed analysts’ estimates.
Going forward a key headwind for the housing sector remains affordability as the average price for both new and existing homes is basically at record highs. The lack of supply is why prices continue to appreciate so fast and offset the benefit of record low mortgage rates. This is perhaps best seen in the fact that more than 7 in every 10 existing homes sold in September were listed on the market for less than a single month. Demographic shifts in the decades ahead will provide more supply but in the meantime an uptick in building activity is what is most likely to ease price pressures. Encouragingly, the latest home construction data showed that single-family housing starts and building permits in September surged to the highest levels in over a decade. Clear regional differences are also developing as the housing market adapts to more Americans working from home, which lessens the need for living in population-dense urban centers. Moreover, a recent Wells Fargo note observed that “suburban and exurban areas outside of major metro areas are seeing an influx of new residents … apartment construction is pivoting toward the suburbs, where renters have a little more living space and outdoor common areas.”
Sources: Econoday, U.S. DoC, U.S. BLS, NAR, WF, FRBSL