New home sales decline in June
Washington, DC – New single-family home sales fell 6.6% in June to 676,000 year-over-year. While new home sales are up 13.5% year on year, June data marked the third consecutive monthly decline, according to the National Association of Home Builders (NAHB).
The reasons why sales have declined since late 2020 have led to an ongoing debate in the media. Some have noted that builders are limiting sales due to a lack of inventory and increased construction costs. Others argue that higher house prices (new house prices are up 10% since January 2020) have priced many buyers out of the market.
Both claims are well founded. Supply-side factors (particularly materials, labor and lots) are holding back housing supply, with the supply of turnkey new homes falling by 44% over the past year to just 34,000 homes. In addition, NAHB surveys indicate that buyers’ perceptions of home affordability are declining, and with good reason: the proportion of buyers who can afford less than half of the homes for sale deteriorated from 63% at the end of 2020 to 71% in mid-2020. year.
During the second quarter, pricing was the #1 reason active buyers have not bought a home, according to the NAHB. Given the higher construction and development costs and the potential for higher interest rates in the coming years, these variables are worth looking at. Meanwhile, the demand for multi-family rental is growing and the market for apartment construction is expanding.
Ultimately, higher interest rates will depend on the pace of economic growth and the future of monetary policy in an environment of increasing uncertainty. GDP growth second quarter came in at a slightly lower than expected rate of 6.5%. NAHB forecast continued economic growth in 2021, resulting in overall growth of just under 7% for the year, which would be the best rate since 1984.
However, the NAHB added that due to the tumultuous environment, including concerns about the delta variant, the Federal Reserve is continuing its moderate approach to monetary policy. At its July meeting, the Fed kept Federal Funds interest rates close to zero and did not advise on a future outfitting of Treasury bills and mortgage-backed securities (MBS) purchases. In particular, Fed Chairman Powell stated that if a winding-down occurs (which we expect to happen this fall), the reduction in MBS purchases will not happen without a cut for Treasuries as well.