June’s New Home Sales Fell to Lowest Level in 8 Months
Despite a fall in new home sales in June, most homebuilders remain optimistic about a housing recovery and are launching new projects.
A decline in the homeownership rate means that demand has shifted toward rentals. Millions of homeowners lost properties to foreclosure during the recession, so they’re now renters.
In June, existing home inventory reached 2.3 million, marginally up by 0.9% over May’s inventory. This is the fifth straight month of increases.
The homeowner vacancy rate in the quarter ended in March was higher than the long-term average of 1.57%, although much lower than the historical peak of 2.9% that was recorded in 2008.
The drop in the rental vacancy rate suggests that owning a home still isn’t affordable for many people, despite an economic revival.
At a seasonally adjusted annual $371.6 billion, residential construction was 0.4% above the total for May. Meanwhile, nonresidential construction stood at $394.8 billion.
Rising home prices may discourage buyers who can only afford so much. So the increase may lead to fewer home sales and affect homebuilders’ bottom lines.
A rise in mortgage rates should signal a pickup in economic activity, higher income levels, and greater confidence among homebuyers.
The mortgage industry has been extremely volatile since 2003 when mortgage origination peaked at $1.2 trillion, only to be followed by a severe downturn.
Mortgage applications include both refinancing and home purchasing applications. These are a leading indicator of housing activity that speaks to the number of potential homebuyers in the country.
The weekly purchase applications survey released by the MBA includes information about all US mortgage applications submitted for the purchase of single-family homes.
Homebuilders’ construction costs include the cost of land acquisition, land development, labor, and construction materials such as lumber, roofing products, et cetera.
The labor shortage in the construction sector can be attributed to many factors. Many workers have retired or are now retiring.
Healthy household formation growth can have a powerful multiplier effect throughout the rest of the economy.
The Northeastern market topped housing markets in other regions. After a hike in building permits the previous month, housing starts there jumped 35.5% to 206,000 units.
The sharp rise in building permits over the past three months clearly shows that the market is in recovery mode. This bodes well for homebuilders such as D.R. Horton (DHI) and PulteGroup (PHM).
The existing home sales survey tracks nationwide prices related to sales of existing single-family homes that closed during a given month.
The pending home sales index, is an index created by the National Association of Realtors in 2001. PHSI measures ongoing activity in the real estate market. The baseline for normal activity is 100.
A sustained rise or decline in the housing indicators discussed in this series could reveal a pattern or give direction about the industry’s movement.
The Job Openings and Labor Turnover Survey (or JOLTS) from the US Bureau of Labor Statistics (or BLS) is a good forward indicator of the labor market.
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