Housing affordability remains a significant headwind as home values continue to be stable while mortgage rates increased to near multi-decade highs this week as the popular 30-year fixed-rate mortgage averaged 7.09 percent. Despite the ongoing affordability challenge the Commerce Department reported This Week in Real Estate a surge in housing starts in July. Single-family housing starts in July grew 6.7 percent over prior month and 9.5 percent over prior year. Demand for new construction continues to be supported by a lack of resale inventory. Realtor.com reported that new listings have fallen against prior year for 58 consecutive weeks. For the week ending August 12, the total number of homes for sale fell 8.6 percent from the same week last year. Home builder stocks got a boost this week following a Monday filing that revealed Warren Buffett’s Berkshire Hathaway made a big bet on US home builders and the housing market last quarter. The company disclosed new investments to the tune of $800 million in three major homebuilders – Lennar, D.R. Horton, and NVR. Below are a few newsworthy events from the third week of August that influence our business:
U.S. Housing Starts Surge in Boost to Economy. U.S. single-family homebuilding surged in July and permits for future construction rose amid an acute shortage of previously owned houses, but mortgage rates climbing back to near two-decade highs could slow the housing market improvement. The sharp rebound in groundbreaking on single-family housing units reported by the Commerce Department on Wednesday was another sign of the economy continuing to defy dire forecasts of a recession. Single-family housing starts, which account for the bulk of homebuilding, jumped 6.7% to a seasonally adjusted annual rate of 983,000 units last month. They rose 9.5% year-on-year in July. The increase in groundbreaking was led by the West, where single-family starts soared 28.5%. Overall housing starts increased 3.9% to a rate of 1.452 million units in July. “The need for new single-family homes, which is driven by scarce existing home inventory, should keep a floor under single-family construction,” said Nancy Vanden Houten, U.S. lead economist at Oxford Economics in New York. “Homebuilders increased their use of incentives again in August, which may support sales and prevent a steep fall in single-family starts.” Permits for future construction of single-family homes rose 0.6% in July to a rate of 930,000 units. They have now increased for six straight months. Overall building permits edged up 0.1% to a rate of 1.442 million units last month. Despite the rise in starts, the housing supply is likely to remain tight. The number of houses approved for construction that are yet to be started fell 0.4% to 277,000 units in July. The single-family homebuilding backlog dropped 0.7% to 140,000 units, while the completion rate for this segment increased 1.3% a rate of 1.018 million units. Overall housing completions dropped 11.8% to a rate of 1.321 million units. The inventory of single-family housing under construction fell 0.7% to a rate of 678,000 units. Read the full story here.
Home Prices and Mortgage Rates End Summer at a High – But Fall Should Bring Buyers Hope. Mortgage rates just jumped to their highest level in 20 years, averaging 7.09% for a 30-year fixed-rate home loan as of Aug. 17, according to Freddie Mac. In addition to home loan rates hitting their highest levels in two decades, home prices edged upward for the week ending Aug. 12 compared with this same time period last year. “For the third consecutive week, the median home listing price maintained a slight upward trajectory,” says Realtor.com economic data manager Sabrina Speianu in her analysis. For the week ending Aug. 12, the total number of homes for sale fell below year-ago levels by 8.6%. New listings were also down, sinking by 8.1%. In fact, fresh listings have been falling for 58 weeks straight. “The continued drag from existing homeowners choosing to stay put is holding back overall inventory,” explains Speianu. “We expect a dip of 5% for 2023 overall compared to 2022.” With the housing supply down, this has put upward pressure on prices. In July, home prices hovered at a national median of $440,000 – and for the week ending Aug. 12, prices continued to rise by 0.2% compared with the same week last year. Read the full story here.
July New Home Purchase Mortgage Applications Increased 35.5 Percent. The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for July 2023 shows mortgage applications for new home purchases increased 35.5 percent compared from a year ago. Compared to June 2023, applications increased by 0.2 percent. “Applications for purchase loans on newly constructed homes remained strong in July, up 36 percent annually, as new homes continued to account for a growing share of homes available for sale,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The FHA share of purchase applications was 24.2 percent, the highest share since May 2020, and has increased in four of the last five months. FHA purchase loans are a popular option for many first-time homebuyers and this increasing trend in the FHA share is indicative of more first-time buyers looking to new homes as an option, given the lack of for-sale inventory among existing homes and challenging affordability conditions.” MBA estimates new single-family home sales, which has consistently been a leading indicator of the U.S. Census Bureau’s New Residential Sales report, is that new single-family home sales were running at a seasonally adjusted annual rate of 677,000 units in July 2023. Read the full story here.
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