The Housing Market's Two Biggest Challenges

June marked the third consecutive month of new single-family home sale declines, and the reasons why have spurred debates, says the National Association of Home Builders’ Chief Economist Robert Dietz. New-home sales remained 13.5% higher in June 2021 compared to the previous year, but dropped 6.6% from May 2021 to an annualized rate of 676,000. Dietz says the media has blamed builders limiting sales due to lack of inventory and higher construction costs and that rising home prices have kicked many buyers out of the market. Both reasons do have an effect on the market, and NAHB says materials, labor, and land are holding back housing supply.

Moreover, NAHB survey data indicate buyers’ perceptions of housing affordability are waning, and rightfully so: The share of buyers who can afford less than half the homes available for sale worsened from 63% at the end of 2020 to 71% by midyear.

During the second quarter, pricing was the No. 1 reason active buyers did not make a home purchase. Given higher construction and development costs, and the potential for higher interest rates in the coming years, these variables are worth watching. Meanwhile, multifamily rental demand is growing and the apartment construction market is expanding.

Ultimately, higher interest rates will depend on the pace of economic growth and the future of monetary policy in an environment with growing uncertainty. Second quarter GDP growth came in at a somewhat lower-than-expected rate of 6.5%. NAHB is forecasting continued economic growth in 2021, resulting in an overall growth rate just below 7% for the year, which would mark the best rate since 1984.

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