Low Home Inventory Impacts Sales; Home Builders’ Confidence Up

Low Home Inventory Impacts Sales; Home Builders’ Confidence Up

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In the current housing market, inventory is low for both new and existing homes. And it seems most home builders see an opportunity to add to the supply. According to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), builder confidence has increased by six points. The index climbed to 65 in September, the highest the HMI has reached since October 2015. Now in its 30th year, the HMI takes stock of the health of the housing market by surveying builders and analyzing their perceptions of current and future sales expectations for single-family homes. Builders are also asked to rate the number of potential buyers they expect to work with in the coming months, on a scale from low to high. If a number is over 50, it indicates that more builders view market conditions as “good” and fewer view them as “poor.”

September’s Index
All three HMI components—current sales, future sales, and prospective buyer traffic—scored higher in September. Current sales expectations climbed to 71 on the index, an increase of six points. Future sales expectations also came in at 71, a rise of five percent. And while the prospective buyer traffic component didn’t break 50—it came in at 48—it still represented a four point increase.

More Buyers, Less Lots
Low interest rates and a boost in job creation impacted the index, as many builders reported an increase in the traffic of prospective buyers—ones who are serious about purchasing a home. This is a trend that should continue. According to Ed Brady, chairman of the National Association of Home Builders (NAHB), “The single-family market continues to make gradual gains, and we expect this upward momentum will build throughout the remainder of the year and into 2017.” But builders will have to contend with their own supply shortages: “Builders continue to be hampered by supply-side constraints that include shortages of labor and lots,” warns Robert Dietz, chief economist of NAHB.

Why Sales Fell
Low mortgage interest rates were offset by rising home prices and declining inventory levels, leading to a drop in home sales. By the end of August, housing inventory fell 3.3 percent to 2.04 million existing homes on the market. This is ten percent lower than last year’s inventory total of 2.27 million homes. For the past 15 months, inventory has dropped year over year. At the current sales pace, there are enough homes to supply the housing market for 4.6 months—a decrease from the 4.7-month supply in July. Home prices, meanwhile, climbed an impressive 5.1 percent in August. The median existing-home price for all housing types reached $240,200; in August 2015, the median price was only $228,500. This is the 54th consecutive month in which prices have climbed year over year.

Sales in August
With low inventory and high prices, existing-home sales fell 0.9 percent in August to 5.33 million. While this is the second-lowest pace of the year, it is still 0.8 percent higher than a year ago. Only in the Northeast—where there is more available inventory—did sales climb month over month.

Regional Breakdown

  • Northeast – Existing-home sales annual rate: up 6.1 percent to 700,000. Sales are unchanged from August 2015.
  • Midwest – Existing-home sales annual rate: down 0.8 percent to 1.27 million. Sales are 0.8 percent higher than August 2015.
  • South – Existing-home sales annual rate: down 2.7 percent to 2.16 million. Sales are 0.9 percent higher than August 2015.
  • West – Existing-home sales annual rate: down a slight 1.6 percent to 1.2 million. Sales are 0.8 percent higher than August 2015.