Housing Affordability Expected to Decrease In Months Ahead
The surge in single-family construction means there are now more residential homes being developed than individual apartments.
Rising home prices and interest rates will decrease housing affordability even further in the months ahead, predicts National Association of Home Builders Chief Economist Robert Dietz.
In a recent NAHB newsletter, Dietz said his outlook comes as home prices have risen more than 30%, on average nationwide since the start of 2020. A year ago, 43% of new home sales were priced below $300,000. In August, the share fell to 30%.
New homes are 24% lower than a year ago because of higher construction costs and some limiting of sales.
“While higher prices have slowed resale housing demand, inventory struggles continue to limit sales volume and encourage more home construction,” Dietz said.
He bases his prediction of continuing declining affordability not only on rising prices but also in the belief interest rates will rise as the Federal Reserve tightens monetary policy.
“Indeed, the 10-year Treasury rate has increased 37 basis points since the start of August. And consumer confidence declined to a seven-month low in September because of virus and inflation concerns. The prospect of higher taxes is certainly having a negative impact as well,” Dietz pointed out.
He cautioned builders will need to watch resale inventory in local markets to gauge how higher prices and rates are affecting available demand.
Dietz noted the surge in single-family construction at the end of last year means that for the first time since 2013, there are now more single-family homes currently under construction than individual apartments.
But year-to-date multifamily starts are up almost 17% on a year-to-date basis thus far in 2021 as a rebound for the rental market has taken hold while single-family starts were down 2.8% for the month.
While higher prices have slowed resale housing demand, inventory struggles continue to limit sales volume (and encourage more home construction). Unsold inventory stands at just a 2.6-month.
NAHB is not alone in its assessment.
In the summer, Frank Martell, president and CEO of CoreLogic, predicted price rises would continue in 2021 and could very well push prospective buyers out of the market in many areas and slow home price growth over the next year.