NAHB: Sales Continue to Overpower Construction Starts

Drops in new-home sales may seem like a warning sign of diminishing demand, but the National Association of Home Builders says it is necessary. From springtime until now, the housing market has had a dramatic few months. Low interest rates, a significant housing inventory deficit, and changing views on housing have bolstered the construction industry like no other, but the demand does not meet the reality of new construction. New-home sales are up nearly 17% on a year-to-date basis, and sales for homes not yet under construction jumped 47% in September. This leads to a historic gap between construction starts and new-home sales.

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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