Signs of a Slowdown In Housing

Single Family housing market conditions have been red hot since last spring, but recent data points are starting to indicate support for ITR’s forecast of slowing home construction starting in late 2021.

Nearly anywhere you look across the country, the housing market seems to be out of control. Homes put up for sale are going under contract, often with inspections waived, in 72 hours or less, and quite often for well above the listing price. I am sure many of you have observed this seemingly drunken market behavior and wondered, ”when are things going to go back to ‘normal’?” Normal, of course, is subjective. But clearly, the last 16 or so months in the housing market has been a departure from what we thought of as normal just before the onset of COVID-19.

Developers have enthusiastically capitalized on these market conditions, with builders starting 1.12 million new single-family homes during the 12 months through June 2021, the highest annual Housing Start trend since 2007 and a 26.2% increase from the same period a year-ago. However, various housing market leading indicators are starting to signal a shift in the market.

US New Homes Sold in June totaled 60.0 thousand units, a 24.1% decrease from the June 2020 level. This marked a 7.7% decrease from the May 2021 level, a below average outcome for June on a month-to-month basis. It would be tempting to dismiss this weaker June figure as the byproduct of a tight supply situation in the market, but Inventory numbers are starting to creep up as well. US Existing Home Inventory rose to an average of 1.2 million homes for sale during the second quarter. To be fair, it is a normal seasonal trend for home inventories to rise during the second quarter. However, so far the seasonal rising trend is off to a better than average trend through June, indicating some supply and demand rebalancing is underway in the housing market. Developers seem to be taking notice, as the National Association of Home Builders Housing Market Index has been gradually declining on a monthly basis and just recently turned over on a quarterly rate-of-change basis.

This is not to say that this is the beginning of a bursting bubble in US residential markets, as the leading indicators are not dire at this point in time. This collective shift in relevant datasets does indicate that it’s probable that the US Single Family Housing trend is likely to move into a slowing growth trajectory during the second half of 2021 - as we anticipated.

Connor Lokar
Economist