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Tight inventory hobbles housing starts, home sales

Tight inventory hobbles housing starts, home sales

For the fourth time in five months, existing-home sales fell in August to a seasonally adjusted annual rate of 5.35 million, according to a Sept. 20 press release from the National Association of Realtors. This is 1.7 percent lower than July's 5.44 million.

New home sales also took a tumble in August, according to data released Sept. 26 by the U.S. Census Bureau. New single-family home sales came in at a seasonally adjusted annual rate of 560,000. This marks a 3.4 percent drop compared to July's new home sales of 580,000.

The drop wasn't for lack of interest; in fact, according to NAR Chief Economist Lawrence Yun, there were plenty of buyers vying for a home this summer. Unfortunately, other obstacles got in the way.

"Steady employment gains, slowly rising incomes and lower mortgage rates generated sustained buyer interest all summer long, but unfortunately, not more home sales," Yun explained. "What's ailing the housing market and continues to weigh on overall sales is the inadequate levels of available inventory and the upward pressure it's putting on prices in several parts of the country. Sales have been unable to break out because there are simply not enough homes for sale."

U.S. home inventory wanes

Total housing inventory at the end of August was 1.88 million existing homes for sale, a 2.1 percent drop compared to the end of July. If home sales were to continue at August's pace, this inventory would be able to sustain the market for about 4 months. At the end of August 2016, there were 2.01 million homes available.

Meanwhile, new home inventory is estimated to be 284,000, about a 6-month supply, according to the Census Bureau.

Housing completions were also low, according to a Sept. 19 press release from the Census Bureau. Last month, a seasonally adjusted annual rate of 1,075,000 privately-owned homes were completed, a 10.2 percent drop compared to July. Likewise, housing starts also fell 0.8 percent to 1,180,000.

Positive momentum predicted for 2018

Though home construction wasn't its strongest in August, there are signs it could pick up soon. The Census Bureau reported a 5.7 percent increase in building permits, amounting to a seasonally adjusted annual rate of 1,300,000.

In its monthly Outlook report for September, Freddie Mac reported it expects new home sales to take off next year. The company anticipates 1.33 million housing starts for 2018, which will certainly help the ebbing supply of available homes.

Freddie Mac also noted that it expects home price escalation to simmer a bit in 2018; U.S. house prices grew 6.3 percent in 2017 and are expected to grow just 4.9 percent in 2018. In other words, while home prices may still continue to increase, they may not be as dramatic or pose as much of an obstacle to homeownership. The company expects total home sales, including both existing and new homes, will increase 2 percent between 2017 and 2018.

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