Rising prices for new and existing homes, low inventories of homes for sale, interest rates climbing to heights not seen since before the recession, all combine to dampen the growth trajectory for housing. We are highlighting the point that housing is still strong compared to a year ago but will not be able to continue averaging such strong growth rates this year. An average rate of 1.2 million starts represents a strong housing market in this new, post-crisis world.
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After averaging over 1.3 million annual starts through May, the past months have seen starts drop back to a 1.2 million pace and we see them slipping below the 1.2 million level for the rest of 2018. Starts are still strong in 2018 compared to last year, up +6% year-to-date. While housing continues to weaken, it is still on a strong trend and will continue that trend into 2019.
September saw another decline in existing home sales. This month was down -3.3% from August and down -4.1% from September 2017. Every month in 2018, except February, has seen a drop from the same month in 2017. High prices for existing and new homes, increasing interest rates, combined with low inventories and reduced consumer interest in moving are all contributed to this downward trend.
September prices were flat compared to August but were well ahead of last year. Increasing lumber prices, aluminum prices, copper prices and labor shortages and the picture on newly constructed home prices is clear. Price go up – Demand go down. It’s a simple economic fact. Add increasing mortgage rates on top of higher prices and new home sales should be down, and they keep obliging.
Builder sentiment is starting to wane as they continue to face labor issues, increasing input prices and a FED forced to increase rates. Consumer sentiment bounced back up in September to an essentially flat trend over the past six months. Good news is sentiment is not declining too dramatically and rests at some recent highs.
Price increases for commodities important to home building and durables manufacturing have softened in the past couple of months. However, the inflation picture is not good. Some Producer Price Indexes are up over 7% in 2018 and the pressures are forcing prices to end users and consumers up. And, many tariffs have not reached their full impact yet.