Rising Homebuilding Costs Continue To Weigh on Construction Activity

• Sales of existing homes fell 2% to 5.88 million units in August.
• Existing homes listed for sale fell 1.5% to 1.29 million units, 25% above the record-low 1.03 million units reached in January.
• Housing supply will get near-term support from the construction of new homes, but the longstanding lack of inventory will drive house price growth into 2022.

Sales of existing homes decreased in August to 5.88 million units annualized, down 2% from the upwardly revised July total of 6.00 million units and down 1.5% from July 2020. This was slightly worse than the consensus expectation of 5.89 million. Existing-home sales declined in all the four major U.S. regions on a month-over-month and year-over-year basis. Sales of existing single-family homes fell 1.9% to 5.190 million in August, while sales of existing condominiums and co-ops fell 2.8% to 690,000.

On a year-ago basis total existing home sales were down 1.5% in August. This included a 2.8% decline for single-family homes and a 9.5% increase for condos and co-ops. The median sale price for all housing types in August was $356,700 (not seasonally adjusted), up 14.9% from August 2020 ($310,400). The median existing-condo price was $302,800 in August, up 10.8% from a year earlier. Properties remained on the market for an average of just 17 days in August, unchanged from July, and down from 22 days in August 2020. The months’ supply of all existing homes for sale was 2.6 months in August at the current sales pace, unchanged from July but down from 3.0 months in August 2020. Six months of supply is associated with moderate price appreciation and a lower level of months’ supply tends to push prices up more rapidly, according to the National Association of Realtors.

After reaching a pandemic-driven frenetic pace last year, the housing market has stabilized. House prices have increased at an extraordinary pace, leaving many potential buyers on the sidelines. Housing demand will continue to improve into 2022 as low borrowing costs, strong demographics and remote work policies provide near-term support. Additionally, an improving labor market and strengthening economy will boost the demand for housing. On the supply side, the lack of inventory remains an issue; inventories of existing homes remain near all-time lows. Housing supply will get some support from the construction of new homes; starts and permits have outpaced completions for over a year. However, existing-home sales account for over 90% of total home sales and the longstanding lack of inventories will be the leading driver of house price growth into 2022. 

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