Economy Watch: Housing Sales Pick Up, But Inventory Anemic

By Dees Stribling, Contributing Editor

A healthy housing market is good for both the broader economy, as well as commercial development in the longer term, since retail and office tend to follow housing development, whether in suburban markets or — as in some urban areas — infill markets. U.S. new home construction rates have improved lately, though not quite to the health of previous decades. Sales of existing residential properties have recovered somewhat as well. That’s an important component in maintaining demand for new homes, since many sellers are trading up to something new, and need a buyer of their existing properties to make that possible.

Total existing home sales, which includes single-family homes but also for-sale multifamily units, increased 4.7 percent to an annualized rate of 5.55 million units in September from a slightly downwardly revised 5.3 million units in August, according to the National Assocation of Realtors late last week. That’s 8.8 percent above a year ago, when the rate was 5.1 million units. The increase represents an improvement, but the market might not have much more room to improve in the near future unless the inventory of houses increases. According to NAR, total housing inventory at the end of September decreased 2.6 percent to 2.21 million existing homes available for sale, and is now 3.1 percent lower than a year ago. Unsold inventory is at a 4.8-month supply at the current sales pace, down from 5.1 months in August.

Anything below about six months’ supply has a hard time supporting robust sales.

The Realtors released a separate report about inventories last month. In it the organization posited that despite positive improvements in the labor market in recent years, new home construction is currently anemic in most U.S. metro areas, contributing to persistent housing shortages and unhealthy price growth in many markets. NAR measured the volume of new home construction relative to the number of newly employed workers in 146 MSAs nationwide to determine whether homebuilding has kept up with job growth in the past three years. The findings reveal that homebuilding activity for all housing types is underperforming in roughly two-thirds of those metro areas.

Specifically, NAR’s study analyzed job creation in 146 metro areas from 2012 to 2014 relative to single family and multifamily housing starts over the same period. Historically, the average ratio of the annual change in total workers to total permits is 1.2 for all housing types and 1.6 for single family homes. The research found that through 2014, 63 percent of the measured markets had a ratio above 1.2 and 72 percent had a ratio above 1.6, which indicates inadequate new construction by that metric.