NAHB: Home construction must increase to keep up with sales

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NAHB Chief Economist Robert Dietz recently provided the following economic and housing industry overview in his bi-weekly e-newsletter Eye on the Economy:

The decline, rebound and growth of home construction in 2020 has been dramatic. After a significant decline in the spring, home building has seen notable gains supported by historically low interest rates, favorable demographics, an evolving geography of housing demand, and a significant inventory deficit.

New home sales have led the way: Sales of new single-family homes are up almost 17% on a year-to-date basis, with a growing number of sales contracts attributable to homes not yet under construction. In fact, such sales are up 47% as of September. A recent NAHB analysis found that the current gap between new home sales and for-sale single-family starts was at historic levels.

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The housing market is already beginning to adjust to this notable gap between sales and construction, as the growth rate for new home sales saw a 3.5% decline from August to September. But to be clear, the pace of sales in September (959,000 annual rate) is still strong, with a 32% year-over-year increase. Combined with the low level of inventory at a 3.6-month supply, the September data indicate growth opportunities for home building.

For these reasons, builder confidence in October reached a new, all-time high. The rising optimism is a reflection of the gains in September’s home construction data, which show single-family starts up 6.2% on a year-to-date basis and permits up almost 10%. In contrast, multifamily building is weakening, with 5-plus unit apartment permits down 8.4% thus far in 2020.

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