Over the summer months, homes sales fell nationally. That wasn’t a surprise, and that didn’t even set off alarm bells among economists about possible weakness in the housing market.
It was clear, even as sales fell nationally in July and August, that buyer interest was not only high – but very high, perhaps the highest it’s been in a decade. The challenge for those buyers, and the main reason sales fell, was a shrinking inventory of homes on the market. There simply has not been enough homes for sale to meet buyer demand.
Even as sales fell, prices went up. That’s a sign that the competition for homes in the most desirable neighborhoods was soaring.
Then came a new twist in the story.
In September, the U.S. housing market went in an entirely different direction. New home sales rose by nearly 20 percent in September from August, as the pace of home sales surged.
And yet at the same time, a jump in inventory wasn’t one of the factors boosting sales. The National Association of Realtors reported that in September, the number of homes for sale sank 6.4 percent from September 2016 to 1.9 million homes. That marked the fewest number of homes for sale in the month of September since NAR began tracking those numbers in 2001.
NAR also reported that sales of previously owned homes increased 0.7 percent in September compared to August. , the first increase after three months of declines, but the increase could have been stronger if there had been more homes for sale.
So where is the market headed if inventory stays low? And what impact will the increase in sales have on new construction?
The housing market reflects the economy
The U.S. economy has been strong in the past few years, and in September, the unemployment rate fell to 4.2 percent. That happened even though economists were carefully watching for the possible negative impact of Hurricanes Harvey and Irma on the jobs market.
Now it appears the nation was able to weather the impact of both hurricanes. The U.S. Commerce Department just reported that the economy expanded at a faster pace than expected in the third quarter.
The nation’s Gross domestic product hit 3 percent in the quarter that ran from July to September. That came on the heels of a 3.1 percent growth rate in the April-June second quarter. And it marks a solid jump from first quarter growth, which came in at a much slower pace of 1.2 percent.
The robust health of the national economy has helped fuel the ongoing strength in the housing market. And that’s a key reason why sales of newly-constructed homes surged to the strongest pace in a decade in September.
As more and more Americans find jobs, the appetite for homeownership is soaring. That’s particularly true since the strong jobs market is also impacting the rental market.
Rents for apartments and homes alike are going up. That’s also prompting more people to consider buying over renting. With mortgage interest rates still at historic lows, that means home buyers will be able to lock in an affordable monthly payment on a 30-year fixed mortgage and not worry about rent increases.
What’s the expectation for new home sales in 2018?
That was the clear trend last month. The MarketWatch consensus forecast a 555,000 annual pace of new home sales. But that number got blown out of the water when it came in at a much higher 667,000 annual pace.
That marked an 18.9 percent increase in new home sales compared to August, and a 17 percent increase compared to September 2016.
Sales were even strong in the South, where Hurricane Harvey battered Texas and Louisiana and Hurricane Irma struck Florida. Realtor.com reported that home sales in the South surged in September, increasing by nearly 26 percent, despite the impact of the hurricanes.
In fact, from January to September, home sales are 8.6 percent higher compared to the same period last year.
One reason sales went up: builders have increased construction of new homes. And more buyers are turning to newly built homes after being frustrated with the limited supply of existing homes to buy.
Amherst Pierpont Securities responded to the report by noting that the bulk of the new homes sold in September had not even started on construction at the time when it was purchased. That means home buyers were responding to low inventory of existing homes for sale by snapping up built-to-order homes instead.
And that indicates a strong and growing demand for new-home construction.
Robert Dietz, chief economist at the National Association of Home Builders, noted that “As existing-home inventory remains tight, we can expect new-home sales to continue to make gains in the months ahead.”
Single-family homebuilding is 5.9 percent higher than a year ago. And builders also obtained more permits for new home construction last month.
How was Florida impacted?
Amherst Pierpont Securities also noted that Florida was able to recover fairly quickly from Hurricane Irma, which made landfall in the Florida Keys on Sept. 10 and then continued up the state’s west coast.
Florida Realtors reported that despite the storm, median prices rose in Florida in September. The still-tight inventory of homes for sale contributed to that.
The statewide median sales price for single-family homes in September was $239,900, up 7.6 percent from the previous year. That put Florida very close to the national median sales price for existing homes in August 2017, which was $255,500, up 5.6 percent from the previous year.
With Florida’s housing market displaying a limited impact from Hurricane Irma, and the state’s economy still very strong, expect that buyer interest will remain strong in the month’s ahead. A healthy job market and low mortgage interest rates look certain to keep those buyers’ appetite for a home very strong.
The big challenge will continue to be the availability of existing homes to buy. But the signs are that builders are responding by ramping up construction. That means new homes are likely to be a solid alternative for many home buyers rather than continuing a frustrating search for existing single-family homes on the market.
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