The COVID-19 pandemic and resulting lockdowns severely curtailed the ability of many consumers to buy homes during March and April, as layoffs and reduced working hours hurt household incomes. Residential construction also slowed as homebuilders grew cautious amidst the slump in demand. Yet despite these effects, the housing market is already showing signs of a quick rebound.
Residential construction rose in June amid strong demand for new homes. Housing starts rose 17.3% to an annualized pace of 1.186 million units in June, following double-digit declines in March and April. The increase in June, plus upward revisions to May data, suggests that starts are making up some of the pandemic losses. Total starts are about 4% lower than a year ago. Single-family starts rose 17.2% in May, while multifamily starts rose 17.5%. A gain of 2.1% in building permits indicates that residential construction will pick up in coming months, particularly for single-family homes. Builders, however, are facing mounting costs, particularly for lumber.
New-home sales are already back above their prerecession level. They rose 13.8% to a seasonally adjusted rate of 776,000 — the highest since the Great Recession. Sales in April were revised lower to 580,000. Sales rose in all regions, with the biggest jump in the Northeast. The inventory of new homes for sale in June declined for a third month in a row. There were 307,000 new homes for sale in June – a 4.7 months’ supply at the current sales pace, and the lowest in four years. The share of new homes sold priced below $300,000 fell to 43% in June from 47% in the previous month. The construction backlog also jumped. Sales of homes for which construction had not yet started accounted for 30% of total sales over the month, up from 21.8% in May.
Existing-home sales will rise over the next few months, but the increase will be slower and more uneven in the second half of the year. Sales of existing homes rose 20.7% in June to a seasonally adjusted rate of 4.72 million, although compared with a year ago, sales were down 11.3%. Sharp increases were reported across all regions, with the West and the South driving the surge. On a year-over-year basis, total inventory was down 18.2% -- the twelfth consecutive decline. The reopening of the economy and pent-up demand from the spring helped existing-home sales bounce back in June. Mortgage purchase applications have risen steadily in recent weeks, signaling that sales will make up more ground over the remainder of the year.
Home-price growth slowed slightly in May. The S&P CoreLogic Case-Shiller National Home Price Index rose 4.5% in May from a year ago, down from 4.6% in the previous month. Low inventories have kept house prices rising, despite the slump in sales during the spring because of the pandemic. With inventories still very low, home prices will likely continue to rise steadily through the rest of the year.