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Home Sales Growth Slows
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Home builder confidence climbed to a new record in November because of limited inventory and strong buyer traffic. Indeed, the growth of newly built home sales between April and August was staggering, increasing from a 570,000 seasonally adjusted annual rate to 1 million as low interest rates and a renewed focus on the role of housing spurred demand. However, because sales are outpacing single-family construction, we expect sales to slow at the end of the year.
Nonetheless, the current pace of sales (annual rate of 999,000 in October) is a dramatic 41.5% year-over-year improvement. And more residences are needed, as inventory of new single-family homes is at a three-and-a-half-year low.
Moreover, the slowing of sales growth is not exclusive to the new homes market. Pending sales of existing homes declined in October for the second consecutive month. While resale contracts are running more than 20% higher than a year ago, the historic lack of inventory (a mere 2.5-month supply) is holding back additional gains. Together, record builder confidence, limited inventory and a growing share of sales for yet-to-be-built homes point to construction gains ahead.
Third quarter 2020 data also revealed ongoing trends in the new construction market. The decline of new home size is leveling off, and we are forecasting gains for home size in the months ahead. Additionally, a suburban shift for housing continues, with single-family and multifamily construction growth remaining strongest in lower-density, lower-cost markets per the NAHB Home Building Geography Index (HBGI). Additional analysis from the HBGI in the third quarter found very strong growth for home building in traditional vacation home markets, suggesting gains for second-home demand.
Multifamily market confidence increased during the third quarter, but remains relatively low and suggests apartment construction weakness ahead. Indeed, five-plus unit permits are down more than 11% on a year-to-date basis, and we are forecasting construction declines in 2021 before the market stabilizes in 2022. However, given the growth in demand for housing of all structure types in outer suburbs and exurbs, we expect low-rise and medium-density apartment development will be solid next year.
–NAHB Chief Economist Robert Dietz
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