This Week in Real Estate: August 20, 2018

While the national median single-home price in the second quarter reached a new peak, single family starts is 6.2% higher than same time last year according to the joint release This Week in Real Estate by the Census Bureau and HUD. Permits are up 7.5% compared to same time last year while the number of homes for which permits have been authorized but construction has not started is up 25% compared to last year. Below are a few highlights from the third week of August that influence our business:

* Flat Conditions for Housing Starts. Total housing starts posted a slight increase in July as markets face headwinds in the form of rising construction costs and growing affordability concerns. Total housing starts increased 0.9% in July to a seasonally adjusted annual rate of 862,000. That is 6.2% higher for 2018 on a year-to-date basis, according to the joint data release from the Census Bureau and HUD. However, builders continue to report concerns about ongoing labor access issues and elevated prices for softwood lumber, although recent weeks have seen price declines. On a year-to-date basis, single-family starts are 7.2% higher as of July relative to the first seven months of 2017, performing slightly worse than our forecast. Single-family permits, a useful indicator of future construction activity, were up slightly (1.9%) in July and have registered a 7.5% gain thus far in 2018 compared to last year. It is also worthwhile to note that there have been gains in the count of homes for which permits have been authorized but construction has not started. For single-family homes, there are currently 97,400 permitted units that have not begun construction. This is up 25% from July of 2017, when the total was 77,800. This increase is consistent with NAHB survey data indicating a pause in some planned construction activity due to the increase in building material costs during the first part of 2018.
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* Metro Home Prices Climb to New All-Time HighAmidst staggeringly low inventory levels in much of the country during the second quarter, existing-homes sales cooled and home prices maintained their robust level of appreciation, according to the latest quarterly report by the National Association of Realtors. The national median existing single-family home price in the second quarter was $269,000, which is up 5.3 percent from the second quarter of 2017 ($255,400) and surpasses last year’s second quarter as the new peak. The median sales price during this year’s first quarter increased 5.7 percent from the first quarter of 2017. Single-family home prices last quarter increased in 90 percent of measured markets, with 161 out of 178 metropolitan statistical areas (MSAs) showing sales price gains in the second quarter compared to a year ago. Twenty-four metro areas (13 percent) experienced double-digit increases, down from 30 percent in this year’s first quarter. In the West, existing-home sales in the second quarter decreased 4.1 percent and are 3.6 percent below a year ago. The median existing single-family home price in the West increased 8.3 percent to $403,300 in the second quarter from the second quarter of 2017.
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* New Single-Family Home Size Continues Downward Trend. Continuing a multiyear trend, new single-family home size decreased during the second quarter of 2018. New home size has been falling over the last two years due to an incremental move to additional entry-level home construction. According to second quarter 2018 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area decreased to 2,344 square feet. Average (mean) square footage for new single-family homes declined to 2,555 square feet. The post-recession increase in single-family home size is consistent with the historical pattern coming out of recessions. Typical new home size falls prior to and during a recession as home buyers tighten budgets, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions. This pattern was exacerbated during the current business cycle due to market weakness among first-time homebuyers and supply-side constraints in the building market. But the recent declines in size indicate that this part of the cycle has ended, and size will trend lower as builders add more entry-level homes into inventory.
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Have a productive week.


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