Despite persistently low inventories of homes for sale and recently increased mortgage rates, new construction sales rose 6.1% on the month and increased an impressive 12.8% on the year, according to the Census Bureau. The Midwest led the charge, with sales increases of close to 31% month over month and more than 50% on the year. Transactions in the Northeast fell just over 21% in February from January but were still up a sizeable 12.8% from February of 2016.
The recent release is welcomed piece of good news for the U.S. housing segment after the National Association of Realtors (NAR) data revealed existing home sales shrank by 3.7% in February from where they sat a month prior.
Though existing home sales were still up by 5.4% over the year, Lawrence Yun, NAR’s Chief Economist, added that “low supply in the affordable price range continues to be the pest that’s pushing up price growth and pressuring the budgets of prospective buyers.” Additionally, he commented, “The affordability constraints holding back renters from buying is a signal to many investors that rental demand will remain solid for the foreseeable future.”
As evidence, the recent Census data on new home sales revealed an all-time high with February’s average sales price at $390,400. Prices have been thrust higher across the country in recent months by tight inventories, high demand and a slow new construction pace releasing an insufficient number of new options for the purchaser market.
NAR’s Yun stated, “Historically, the country adds 1.5 million new housing units each year. … Over the past 10 years from 2007 to 2016, average housing starts were 900,000 per year. That is grossly inadequate. That is why there is a housing shortage across the country.”
Affordability issues could perhaps be further impaired by the Federal Reserve’s efforts to raise its benchmark interest rate which will indirectly cause mortgages to climb. While not many anticipate that one or two rate increases will considerably restrict mortgage affordability, a year or two of consistent rate hikes could make the cost of borrowing money – especially home mortgages – more difficult for lower-income households.
The good news, though, is that an abundance of new home construction appears to be on the horizon. The Census Bureau showed housing starts increased to a near 10-year high in February, boosted by uncommonly warm weather across the nation.
Starts in the Census Bureau report increased 3% over the month and 6.2% on the year, while home completions were up 5.4% from January of this year and 8.7% from February of 2016. Affordability issues aren’t expected to be resolved immediately however analysts believed that positive housing starts report to be an optimistic indication of what is to come.